The persistent gulf between big cap growth stocks and downtrodden secondary stocks like biotechs is showing signs of narrowing.
The gap between downbeat stocks and larger indexes may finally be narrowing, and TheStreet’s James “Rev Shark” Deporre says that’s good news for the stock market.
“Under the surface of the indexes there is some good action,” Deporre wrote recently on Real Money. “What is most interesting is good relative strength in biotechnology (IBB) – Get iShares Biotechnology ETF Report, growth (ARKK) – Get ARK Innovation ETF Report, cannabis (MSOS) , small-caps (IWM) – Get iShares Russell 2000 ETF Report, and other sectors that have been the biggest laggards for a long time.”
Rev Shark’s been discussing the disconnect of some secondary stocks from the indexes for a long time, and now traders are finally seeing some signs that the gap is closing – even if a little bit. “There’s still a huge difference in performance, but it’s a good sign to see the relentless selling pressure lifted from groups like biotechnology,” Rev Shark added.
Deporre’s three favorite biotechnology names currently are Xeris Biopharma (XERS) – Get Xeris Biopharma Holdings, Inc. Report, Aurinia Pharmaceuticals (AUPH) – Get Aurinia Pharmaceuticals Inc. Report, and Myovant Sciences (MYOV) – Get Myovant Sciences Ltd. Report. “I’m looking to build them as they develop,” he said. “I also have some (LABU) – Get Direxion Daily S&P Biotech Bull 3X Shares Report ETF for a short-term play.
According to Rev Shark, the key for these secondary groups that are acting better is that they hold up. “There had been no fear of missing out in groups like biotechnology for a long time, but it will build fast if there are any signs of momentum that last longer than a day or so,” he said.
However, this is not a market that can be easily trusted. “The computer algorithms can hit quickly, and stocks can reverse fast. It is still too early to build sizable positions,” Deporre cautioned.
