On February 17th, 2015, when the Biotech Index (IBB) was selling at around $320 I asked the following question. Is It Time To Short Biotech (IBB)?
I was too early. Then, on March 20th, when IBB had a massive spike higher, a spike that immediately failed, I asked the following. ….Did Biotech (IBB) Top Out TODAY?
Closer, but still not good enough. Biotech (IBB) ended up topping on on July 20th and just 25 points higher. Since then, the index is down 35%. And that’s quite a bear market for the industry.
Back in March 20th I have compared IBB to Nasdaq’s blow off top in March of 2000. Here is what I said at that time.
The Nasdaq hit an Intraday high of 5,132 on March 10th, 2000, then promptly turned around and proceeded to collapse 80%. Is it possible that the Biotech Index (IBB) did the same thing exactly 15 years later?
Not only is it possible, it is highly probable. Back in 2000 it was Pets.com and Nortel Networks. Today, it is hundreds of impressive sounding “Genome” Biotech names that have
- A few Ph.D’s on their payroll.
- An impressive idea.
- A white paper on how their new generation drug will change the world and make Trillions….a paper that maybe 10 people on this Earth can fully understand.
- No way in hell of making a cent or getting their drug to the market.
- A whole bunch of stupid investors that believe they will get rich.
Make no mistake, Biotech is an a giant bubble that will pop. And it’s not only Biotech. We are witnessing the same thing in the Silicon Valley’s “Mark Cuban” illiquidity bubble and even on the Nasdaq. Alibaba deal values Snapchat at $15 billion Do I really need to say anything when an app with no revenue is valued at $15 Billion by a company that is in its own spectacular overvaluation bubble? I hope note.
I am actually quite dumbfounded by the excessive weakness in biotech when compared to everything else. It was certainly the most overvalued and speculative sector in 2015 and it MIGHT just be forerunning the rest of the indices.
But I am not as bearish on the sector as I once was. If you did initiate a short position at or near a top, I would maintain it. The sector will push lower before its all over. However, don’t be surprised to see some big rallies and quite a bit of volatility moving forward.
