Biotech Stocks: A Bumpy Ride to Recovery

A Rocky Start

Biotech stocks have faced challenges since their peak in early 2021. Unlike the broader market's rebound in 2022, they struggled. However, this summer brought a shift.

The Challenge of Biotech Investing

Most biotech stocks are in early development stages, lacking steady earnings or revenue. They often rely on milestone payments, making individual investments risky.

A Safer Approach: SPDR S&P Biotech ETF (XBI)

The XBI ETF offers a safer way to invest in biotech. It provides exposure to multiple stocks, reducing the risk of a single drug's failure impacting your entire portfolio.

A Tough Year for XBI

XBI struggled below its 200-day moving average throughout the year. Even after a strong signal in April, it had a long way to go to reclaim this key trendline.

Patience Pays Off

In August, XBI finally retook its 200-day line. It was added to a trading strategy at this point. During a reversal day, some profits were taken off the table. The rest were sold the next day when the price fell below the entry point. Despite this, the trade ended with a small gain due to earlier profit-taking.

Another Attempt

A few weeks later, XBI broke above resistance, and another attempt was made. This time, the position was trimmed early when progress stalled. However, the next day, the trimmed position was added back as strength returned. Unfortunately, XBI went sideways again, and the trade ended with a small loss. The strategy is to quickly exit positions that aren't performing well.

Learning from Setbacks

Missing out on a market run doesn't mean you should avoid future trades. A reversal at the 10-day line provided another opportunity. This time, instead of taking profits during strength, the position was increased. Biotech stocks were one of the few areas performing well after a sell-off in October. However, profits were taken during a downside reversal, and the position was exited after XBI broke below the lows of the prior few days.

Considering Another Try

With the strength shown at the end of the week, it might be worth considering biotech stocks for another try. Remember, investing in biotech stocks can be volatile and risky. It's crucial to have a strategy and stick to it, even when faced with setbacks.