’Tis the Season for Bullish Bets on Biotech!

By TradeSmith Editorial Staff

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To everything there is a season, and a time for every purpose under heaven. And as I’ve told you over the last few days, seasonality extends to financial markets, too.

On Friday, I showed you that, historically, stocks and sectors perform better at different times of the year.

And if your purpose is to gain an edge over the market in hopes of earning more money, then it pays to be aware of different seasonal buy-and-sell signals in the stock market.

Stocks in general tend to perform best from November through April each year. That’s the seasonal sweet spot offering investors the best opportunity for stock market gains.

The S&P 500 is up 71% of the time during this bullish seasonal window, with median gains of 5.4%.

But the story gets better for investors this year.

That’s because when the typically weaker period from May through October posts above-average gains, the S&P 500 typically delivers even stronger gains, according to a study of 96 years of data from Merrill Lynch.

In that case, we are in luck.

The S&P was up 10.1% from May through October this year. That is far ahead of the average gain of just 2.25% during this six-month stretch.

According to the study, when May through October was strong, the seasonally favorable November to April period posted median gains of 8.3%, with the stock market up 76.5% of the time!

So you are in the strongest stretch of the year for stocks right now, according to the calendar.

The question is: Which sectors and stocks could offer you the most bang for your investment buck? I’m glad you asked.

On Friday, I pointed to energy, financials, and real estate. But today, I want to draw your attention to biotechnology stocks, which are also benefiting from seasonality, according to the chart below from SentimenTrader.

You can see that the iShares Biotechnology ETF (IBB) has very strong seasonal upside in November. In fact, it is the strongest month of the year for IBB in terms of performance, up nearly 4% on average during November.

I keep an eye on many outside research sources that I trust, but I always verify their findings with our own in-house TradeSmith tools. They are my ultimate go-to source.

And as it turns out, our own proprietary indicators are giving the same bullish message on biotech stocks.

IBB has been hovering just above the Yellow Zone since Oct. 1, occasionally closing slightly under that level, as it did last Friday.

The ticker is rated as Bullish in our system and has been in an uptrend for more than a year.

In addition, the TradeSmith composite timing cycle for IBB is in a medium-conviction valley area — typically a good time to buy — and has two projected opportunities for an upside move from now through late January. This confirms the seasonal tendency for biotech stocks to deliver favorable results at this time of year.

To take advantage, you could simply buy IBB with an eye toward holding the ETF through the end of January. But here’s another way to aim for gains with leveraged upside potential.

Consider buying the IBB Jan. 21, 2022, call option with a $155 strike price (recent price $5.45). Should IBB move back up to its recent high of $175, this trade could deliver a potential profit of 260% or more.

Or if you prefer to invest with individual stocks over ETFs, there’s a third way to take advantage of the strong seasonal trend in biotech.

Biotech giant Gilead Sciences (GILD) is in the TradeSmith Green Zone right now. In fact, it’s currently the top-rated stock in the biotech sector, according to the Health Indicator, and it also carries a Strong Bullish rating in our system.

To everything there is a season. And if the typical seasonal trends hold true this year, then biotechnology is one sector that could deliver solid gains in the months ahead.