We had another mixed day on Wall Street on Wednesday, indicating a lack of commitment. The Nasdaq it increased by 0.4%, while small capital values fell twice as much. In the meantime CBOE volatility index (VIX) fell by 4%, indicating that the mood is normalizing. Meanwhile, investors are shaking with the smallest headlines. As a result, finding stocks to buy at these levels has become more difficult than usual.
Because they are not trading in a vacuum and investors need to consider the possibility of surprising corrections. If the indices fall, they will pull all the stocks with them.
This unusual commitment is a by-product of infinitely high levels that are going into the tightening cycle of the US Federal Reserve. In fact, the macroeconomic situation is still solid. The Fed needs to eliminate QE because economic reports are so strong. A strong economy in the United States is almost no burden.
Nevertheless, for now, the thought of raising interest rates has scared investors. This is an understandable reaction, as inflation reaches long-term record highs. I assume this is a short-lived phenomenon and that too will pass. Raising interest rates overnight by a few ticks is unlikely to hamper the earnings potential of stocks.
To be on the safe side, we focus on finding stocks with only solid foundations. In fact, this is a thesis shared by all three stocks today. They have fallen hard into very crucial levels of support. This is crucial because it would be the opposite of chasing fugitive rallies.
When investors are emotional, they are prone to initial mistakes. Some hunt too late on the way up, while others get out too late on the way down. Today’s thesis is to pick up what panics after a long fall.
I focused my list of stocks to buy today on the biotechnology sector. I wouldn’t suggest taking all three at the same time because to some extent they usually change in unison. so:
- SPDR S&P Biotech ETF (NYSEARCA:XBI)
- Direxion Daily S&P Biotech Bull 3X shares (NYSEARCA:LABU)
- Biogen (NASDAQ:BIIB)
Shares to buy: SPDR S&P Biotech ETF (XBI)
The biotechnology sector is difficult to trade. They are prone to headlines, which makes every day like a surprising earnings report. Therefore, when investing in them, investors must be careful to address as many issues as possible. First and foremost, they need a lot of homework on their basics. Not everyone has enough time or knowledge to apply to every company.
The XBI is an easy solution to this, as it throws a wide grid at it all. Each of its components has a small particle so that no one can intimidate it. This is important because it spreads the main risk widely to avoid losing business.
The basic assumptions in this sector involve a lot of trust in teams. They usually strive to improve human life. They have ups and downs and I never shorten XBI because it would only be bad juju. He came to my list of stocks to buy today because of the area of support he may have hit.
XBI shares have endured some difficult weeks of trading. It has lost 40% of its value since its peak last February. Because of this, time is now important, it has reached a very key level. An area of about $ 100 a share was where they erupted after the pandemic. What’s more, from where they failed before, even back to 2018. Clearly, investors feel this is a line worth fighting for. I anticipate that it will be the same this time as well, so support should come.
Direxion Daily S&P Biotech Bull 3X shares (LABU)
Everything I said about XBI applies directly to LABU shares, only three times as much. This ETF follows the XBI, but with three times the leverage. So if the XBI moves by 1%, the LABU share reaches 3%. This makes them popular with investors, but they can be dangerous.
Technically, the LABU at this stage is almost the same as the XBI, but not completely. LABU began trading in the summer of 2015, when the biotechnology sector collapsed. It fell 85% straight down before hitting the bottom of February 2016. That $ 20 level has remained the lowest since.
This week, LABU is at it again, so for all purposes it is at the lowest values of all time. The only time it fell below $ 20 a share was during a pandemic. Apparently these were urgent circumstances that do not recur often. So bulls can have confidence because they know the “bottom” is close.
Apart from the lowest values in 2020, LABU closed just under $ 25 per share per week. Clearly, longevity is not an obvious mistake now. Either he falls a little more, or he swings in a nice rally. It would be good for investors to stop if they lose ground in new falls. Then trading would be literally off the charts.
Shares to buy: Biogen (BIIB)
The third of our three stocks to buy is Biogen. You may have already read the headlines about unfavorable judgment of Medicare. This caused stocks to fall into a huge $ 25 gap. Some have recovered, but BIIB shares are still down 7%. At worst, the fall on Wednesday meant a complete correction by Wall Street standards.
Although the news is bad, it doesn’t completely kill the bullish thesis for the stock. The company is still generating billions in revenue so they can still recover from it. As already mentioned, today’s Biogen stock thesis is technical. For the future, I bet there are enough customers looking for support.
Such a big sale may have long red days. I’m glad the bulls managed to close $ 5 above the bottom on December 6th. Therefore, technically, the bears have not yet received a confirmation trigger. This can still happen today or Friday, but for now the bulls are living to trade another day.
The belief in catching this falling knife really comes from the age of this level. Biogen stocks have jumped from these levels since 2013. This includes a pandemic and two major crashes in 2019 and 2016. Clearly, the bottom below current levels has earned doubt.
On the day of the publication of Nicolas Chahine did not hold (directly or indirectly) any positions in the securities referred to in this Article. The opinions expressed in this article are those of the author and are the subject of InvestorPlace.com Guidelines for publication.
Nicolas Chahine is CEO SellSpreads.com.