One thing I know from witnessing many market and economic events is that the stock market is resilient. I’ve seen many cycles come and go, with the markets dropping precipitously, including
Early 1990s recession: Iraq invaded Kuwait in July 1990. Dow dropped 18% from 2,912 on July 3 to 2,382 on October 16.
July 2–October 29, 1990 (mini-crash): Asian financial crisis. The Dow declined 15.6%
September 11, 2001: Markets closed for seven days. When they reopened, the Dow lost 7.1% on the first day of trading.
March 19, 2002–October 9, 2002: Internet bubble bursts. Dow drops 31.5%.
February 6, 2007–March 13, 2007: Markets rattled by Chinese market bubble. Dow declines 4.7% from 12,667 to 12,076.
October 12, 2007–March 9, 2009: Recession. Dow dives 54% from 14,093 to 6,547.
April 27, 2010: European sovereign debt crisis. Markets slide 2%.
May 6, 2010: Flash crash. Markets down 3.2%.
June 23, 2016–June 27, 2016: Brexit. Markets dropped 871 points.
The World Didn’t Collapse after Brexit
And in all these cases, the market made a strong recovery, soaring even higher. For sure, the decline following Brexit created uncertainty in the hearts and minds of investors worldwide, but the jury is still out regarding long-term repercussions from Great Britain’s exit from the European Union. And more than likely, markets will continue to take the news in stride, processing it along with other global events, including interest rate actions, unemployment gains and economic progress.
Here’s what I wrote to our Wall Street’s Best subscribers on the morning following Brexit:
“As I write this, the markets are off their lows, but I expect that they will bounce back and forth today, as well as over the next few trading sessions. Investors and money managers hate uncertainty, and the world is now asking lots of questions about the future of the European Union, and more specifically, how this significant event will affect economies and investments around the world.
Just as in past ‘news events’, it’s best to let this one ride for a few days. Don’t panic; don’t start selling your stocks. In my 30+ years in the markets, I’ve seen lots of crises, and the markets almost always react the same way—panic selling, then hopeful buying, more selling, more buying, and eventually, they absorb the implications and return to normal trading patterns.”
And, as the following chart illustrates, the markets have, indeed, sprung back again, recovering all of those losses.
During the brief decline, investors fled to defensive industries like utilities and consumer staples, while other industries were hit hard, including financials, materials and technology. And healthcare, which had seen some decent gains in the past few months, also repelled investors.
Biotech Stocks Are Roaring Back
But yesterday, healthcare stocks outperformed every other industry, gaining +0.67%. And this morning, I’m reading lots of headlines that are very bullish on one particular healthcare sector—biotech.
John Gray, one of our contributors to Wall Street’s Best newsletters, and Editor of Investor’s Intelligence, had this to say about the industry:
“The Healthcare Bullish % was one industry showing a gain on Wednesday. The chart still has a lot of work to do in order to reverse up and therefore caution is still suggested. The probability for a deeper retracement remains high.”
After Brexit: Three Biotechs Issuing Buy Signals
But he went on to name three biotech stocks that were issuing buy signals yesterday.
“Edwards Lifesciences (EW) is actually a good signal as it resumes price and relative uptrends. The P&F relative chart reversed up yesterday. A return to the record highs from April is likely over the short-term; a tight trailing stop could be used.
“Merck (MRK) rallied 2% yesterday, increasing its year-to-date gain to 12%. The price and relative charts both saw single box fills to the upside. The relative ratio is rising off a seven-year floor. Present yield is 3.37%. Target = $65. Stop loss = $57.50.
“Celgene (CELG) generated a P&F buy signal yesterday as it moves up from the floor of its 2016 range across $95. Clearing $110 will activate a base and project a move back towards the 2015 highs. The P&F relative chart is close to breaking free from the 2015 corrective channel.”
Please note that these are bullish trading signals. Both EW and MRK are trading near their 52-week highs, and while CELG was up over $4 yesterday, it is still some $40+ off its yearly highs. If you are a long-term buyer, please make sure that these shares fit into your overall portfolio strategy before diving in. And as always, keep your portfolio diversified!