A major group in the markets turned long-term bullish today, and I've been on the lookout for it for quite some time. The reason for my keen interest is that the stocks in this group currently began exhibiting characteristics that were very common to a period just before a major 4-year rally for the group.
I'm talking about Biotechnology stocks and, among the similarities to 2012 (the beginning of that 4 year rally), major Pharmaceutical firms have been buying up promising Biotechs. The mergers provide big Pharma growth by capitalizing research and development that turns into big revenues once treatments are approved.
An even more striking similarity to that pre-rally period 8 years ago has been the use of Technology to help accelerate the path to FDA approval. In 2012, it was high-speed computers that facilitated then-cutting-edge DNA sequencing, which was responsible for many new drug developments.
Today, technology remains at the forefront, as those same genes we've been able to sequence can now be edited. It's using a newer CRSPR technology, which has been available but not widely used. That's been changing as, just today, top Biotech stock Vertex (VRTX) was issued a designation that will expedite the development of their gene-editing drug to help treat blood diseases using CRSPR.
The news was the first of several recent approvals of this technology as Merck (MRK) just received a U.S. patent for 2 additional CRSPR technologies after hours today. As a leading innovator of CRISPR technology, MRK will license the technology to other scientists as the utilization continues to expand.
MONTHLY CHART OF BIOTECHNOLOGY ETF (IBB)
As you can see in the monthly chart above, Biotechnology stocks have just broken out of a 4-year/10-month base. Historically, the longer a base breakout, the longer the advance out of that base. I've also highlighted the period following an 18-month base breakout for this group that occurred in early 2012.
It's not just CRSPR technology that's critical to today's medical advances. High speed data analysis tools helped COVID-19 virus's entire genetic makeup to be published within days of being identified in January. This can be compared to the 2003 SARS coronavirus outbreak, which took almost 3 months. This higher-speed analysis is also helping bring a potential COVID-19 vaccine to market much sooner than expected.
All of these developments point to a positive future for Biotech stocks, as does the removal of political headwinds with the exit of Bernie Sanders - famous for his Medicare for All reform - from the presidential race. Faster FDA approvals in general are also constructive.
Vertex (VRTX) has been one of the top-performing stock picks from my MEM Edge List. If you'd like to be alerted to other high-quality growth stocks poised for further upside, trial my bi-weekly MEM Edge Report for 4-weeks for a nominal fee.
We've gotten in front of many fast-moving stocks in other areas of the market, and most are in bullish positions to trade much higher. Trial my report today and you'll also have access to my Tuesday and Thursday live trading rooms with Erin Swenlin of StockCharts.com.
Mary Ellen McGonagle,