By: Bill Spencer — December 28, 2019
Happy Saturday (and Happy New Year)!
Thanks for stopping by.
The holiday-shortened week saw small-caps come up short.
The Russell 2000 lost -0.17% on the week. Barely a blip in the grand scheme of things I know. The Dow managed to gain +0.66%, the S&P 500 +0.58% and the tech-heavy Nasdaq Composite +0.91%.
No surprise that the Nasdaq is at the head of the pack. As a broad market sector, Technology has been crushing it for more than two years now.
We've looked at three tech-focused ETFs in this column over the past month. Let's see how they're doing...
The SPDR S&P Semiconductor ETF (XSD) is up +4.55% since we talked about it on December 15th. Over that same period the Dow is only up +1.81% while the S&P is up +2.24%. Even the Nasdaq has gained just +3.11%.
On November 29th we discussed the First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) which tracks the performance of stocks in the Nasdaq 100 that are considered to be "tech stocks".
That ETF is up +4.95% since November 29th -- a period that saw the Dow gain +1.70%... the S&P gain +2.73% and the Nasdaq gain +3.46%.
The second ETF we looked at on November 29th (the Invesco S&P SmallCap Information Technology ETF (PSCT) is up +2.17%.
So yeah... there's no stopping the tech train. Not now and certainly not in 2020.
That's not just my opinion. I've been talking to executives at cybersecurity firms... mega-cap hardware companies... tech-focused funds (like the three above)...
And no one, but no one, is making a bearish case for technology.
Right now the strongest sub-sector within technology is Biomedics Genetics. The sector is ranked #1 out of 45 and the internal indicators all show robust relative strength.
(Click any image to enlarge)
When we look at internal indicators -- for the market or for a given sector, stock or ETF), we want to see whether what we're looking at is strong in the short-term, the longer-term, or both.
Here's the Biomedics Genetics sector Bullish Percent Index chart (BPI).
A BPI chart shows what percentage of stocks in the sector are on Point and Figure (PnF) "buy" signals. The Biomedics Genetics sector currently has 48.62% of its stocks on buy signals.
Just last December just 12% of Biomedics Genetics stocks were on buy signals (the red arrow).
The sector is currently in a column of X's (highlighted) which says it's strong in the short-term.... AND the chart is on a "buy" signal -- which means it's strong in the longer-term as well. This puts this BPI chart on what's called bull confirmed status -- the strongest possible designation.
The BPI chart is the chart that's slowest to change. Notice in the image above that there have been just eight column changes between December 2018 and December 2019.
We can confirm what the BPI tells us by looking at another important internal indicator from the same sector. It's called the %30-Week.
You can see that this indicator is also in X's and on a buy signal. So we shouldn't expect the BPI (which tends to lag the %30-Week) to change columns anytime soon.
You would expect however, that any sector as strong as Biomedics Genetics would be outperforming the wider market.
You'd be right.
This chart compares the performance of the sector to the equally weighted S&P 500. As you can see this chart is in X's and has been on a buy signal since November. In other words, the Biomedics Genetics sector has been outperforming the market for more than a month.
The global market for biopharmaceutical and biomedicine market is currently worth $469 billion. By 2025 that number will reach $804.5 billion.
The coming year should be kind to Biomedics. For one thing while the Trump administration has talked about "doing something" about high drug prices, the administration is expected to friendly toward the industry -- certainly friendlier than you'd expect a Biden or a Warren or (gasp!) a Sanders administration to be.
Also, Mergers and Acquisitions (M&A) have always been key in biotech. Biotechs need to wait for new drug approval before they can begin earning off it. For that reason they're always looking for way to diversify their revenue sources.
I expect we'll see that trend intensify in 2020, propelled by a strong market.
If you follow the markets even casually you know that all the major indices keep breaking new highs. The tech-heavy Nasdaq just moved above 9,000 for the first time ever.
What's more, this bull market has plenty of room to run. Here's the most up-to-date view of the "granddaddy of all indicators", the New York Stock Exchange BPI.
This chart shows the percentage of stocks on the NYSE that are on point-and-figure buy signals. As you can see (circled above) 59% of stocks on the NYSE are currently on buy signals.
The market will not be considered "overbought" (risky to bulls) until the NYSE BPI hits 70%. So we have a ways to go yet. (The red arrow shows the last time the market was up past the 70% box. You can see that an overbought level preceded a dramatic market selloff.)
One way to get bullish on the Biomedics Genetics sector is to buy the First Trust NYSE Arca Biotechnology Index Fund (FBT).
This ETF tracks an equity index called the NYSE Arca Biotechnology Index. This index measures the performance of a cross section of companies involved in recombinant DNA technology, molecular biologyand genetic engineering, and genomics, among other biomedical processes.
The fund's holdings are a good mix of small-cap, mid-cap and large-cap firms.
So far FBT is up 25% since October 1stand just pulled back about -2.7% from its December high.
The last two trading days were down days, so I recommend waiting a few days and buying after the first up day. That way, we still get a decent entry price and we minimize our exposure to momentum to the downside.
I think we’ll be able to bank a 15% to 20% gain on this ETF by mid-year 2020.
Before I go...
The best way to outperform the market (up or down) is to trade based off of market internals (like the BPI and %30-Week indicators)...
... and a clear picture of the relative strength of different asset classes, broad and narrow sectors, and stock and ETFs.
Right now Chris Rowe is offering his entire technical analysis educational program for 81% off (it's a New Year's offer that expires on 1/1/2020.)
His program will show you, step-by-step how to see the market and how to trade off of (and profit from) the market you actually see. Chris is also caking on a special bonus until January 1st -- six full months of his most profitable trading service, Deep Market Trader
If you're interested, details are here.
Thanks for reading...
And I'll "See you next year"!
Big Bill Spencer
Editor-in-Chief, True Market Insider