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Stock Market Sells Off As Biotech Gets Rocked, Again!

Just more of the same isn’t? Gap up at the open, then a slow drag lower the rest of the day. I hate days were the market just gaps up, what is the point? It always just fills the gap. You must avoid opens like the one day.

Could it be more obvious? The only difference today was that we managed to fill two gaps. It’s getting old that is for sure and just serves as more of an annoyance than anything fundamentally changing.

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The real frustrating part in most of this is that the media seems to like to talk about “warnings signs,” making a bigger deal than it deserves.

Is the market “overbought?”, Technically yes, based on the relative strength index reading of 77, because a reading over 70 is considered overbought. The last time I checked the market doesn’t go up in a straight line and a pullback is expected to happen.

I have surely been one of the more aggressive bulls on Wall Street, over the past two years, and I’m looking for a rise to 3,100 in 2018 on the S&P 500. More recently I have suggested we could see a rise to roughly 2,850 by the start of March. But at the current pace, we would have likely hit that number before the end of January. So I would welcome a period of sideways consolidation or even a 2-3 percent pullback.

Fundamentally, the equity market is not expensive. The S&P 500 operating earnings are estimated to climb by 10.5 percent in 2019 to $164.57. That estimate, provided by Dow Jones S&P Indices, was just lifted from $160.03 on December 31. Based on that, even at 2,775 the S&P 500 is only valued at 16.8 times 2019 operating earnings. At the end of the first quarter on March 31, 2017, the S&P was trading at 16.6 times 2018 operating earnings estimates. So even with the fast start to the year, the market is valued at the same level it was last year to the start the year. Should estimates keep trending higher, then the market is only getting cheaper if the pace of earnings is climbing faster than the speed of the market.

The economy continues to strengthen with GDPNow forecasting a reading of 3.2 percent in the fourth quarter of 2017. That would make three straight quarters of GDP growth higher than 3 percent. Economies globally appear on the mend, and to this bull, things are looking pretty good.

So much for the naysayers that said that US GDP could no longer grow at 3 percent. Not to rub it in the face of the “economist”, but I did call this move higher in the economy in May of 2017. For that matter, I see a four handle coming in 2018.

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Biotech Stocks

The NASDAQ Biotech ETF ($IBB) was greeted with some resistance when they got to $113.50, no surprises, right? We can see it failed at that same level back in October, and it is going to have to battle to get through resistance. But we also know there is real support around $107, and the NASDAQ IBB is far from overbought at current levels.

Surprisingly, 4 of the big 5 biotech stocks held there gains, with Amgen, Biogen, Gilead, and Regeneron all up. Only Celgene was down in that group. But look at the most significant losers today, they have also been among some of the most prominent gainers year to date. Plus just breaking tonight, Celgene is looking to acquire Juno according to the Wall Street Journal. Celgene isn’t messing around in 2018, and they are working very hard at diversifying that pipeline, the market seems so obsessed about.

Roku

The air is really coming out of Roku now, and it is probably going to see a bounce back to $43, but don’t be fooled.

That gonna be it today.

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Michael Kramer and the Clients of Mott Capital own shares of CELG and TSLA

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

Tags: #sp500 #bitoech #celgene #roku #biogen #amgen #gilead