XBI is a small/mid cap fund with a relative equal-weighting of biotech stocks. IBB is a market-cap weighted fund skewed towards the large-caps. Simple thesis: if investors are bullish they should like biotech, all else equal. If they’re nervous, they will not like small, cash burning companies that face existential risk in an extended bear market or recession.
In late June 2022, I noticed $XBI had been outperforming QQQ. It also bottomed in May and didn’t follow with a new low in June. I took that as a sign the market decline into June was probably running out of steam.
I went aggressively bullish on XBI and IBB calls when Tim noticed the same thing. at the same time. It was my best trade of the summer and helped me avoid being burned in the rally.
Fast forward. I haven’t been using the signal because the market is ignoring all signals since March. However, XBI and IBB both peaked in February. The BTFP held no sway over them. As a result, the ratio of XBI/QQQ peaked in December 2022. Since then, it has slid towards the 52-week low. The IBB/QQQ ratio is already at a new 52-week low. The market is hinting that investors remain nervous, and that a new round of weakness could be unfolding here.
Look at charts such as ILMN, ABBV, PFE, UNH for potentially broader weakness in healthcare stocks.
