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It's Time for Quadruple-Digit Gains, AGAIN... in Biotech StocksBy
Tuesday, July 5, 2011
Is it time for quadruple-digit gains in biotech stocks, again?
I think it just might be...
Let me explain why today... and show you how you can get in on it.
A quick look back over history shows that when biotech stocks finally take off, they can go absolutely nuts...
Back in the dot-com days, biotech stocks as a group soared 457% in 18 months.
I don't mean that one or two biotech stocks went up nearly 500% in "about" 18 months – I'm not cherry-picking winners or exact dates. I mean the entire Nasdaq Biotechnology Index rose 457% from the end of August 1998 to the end of February 2000.
You might think that was a one-time thing... But the truth is, in the early 1990s, biotech stocks soared even more... with a 1,000%-plus move. (That was in the Datastream Biotech Index. Nasdaq's index didn't exist yet).
With numbers like those, you can see why I often say...
If you catch just one biotech bull market in your lifetime, you may never have to work again.
Biotech stocks have actually had four massive, triple-digit bull markets since the 1980s. But today, the Nasdaq Biotech Index is lower than it was back in March 2000. We're due for a bull market in biotech.
Back in those previous bull markets, we didn't have a simple investment that would rise even more than the index. But now we do... the ProShares Ultra Nasdaq Biotech fund (NASDAQ: BIB). It's a "double long" fund on the Nasdaq Biotech Index. For every 1% the index rises, BIB should go up 2%.
This fund is only a couple years old. But thanks to our True Wealth Systems databases, we were able to essentially replicate the performance of a double-long index going all the way back to 1983... The performance of BIB shouldn't be too different than the performance of this hypothetical double-long index. Take a look:
 As you can see, this double-long biotech index had two quadruple-digit bull markets... around 1990 and around 2000. Now that we're in 2011, it seems like we're overdue for another triple-digit run, at least.
In True Wealth Systems, we've built a simple trend-following strategy to capture the gains in biotech stocks. When the line in the chart above is "green," we're in "buy" mode.
Our simple strategy has compounded gains at 46% a year when in buy mode, versus next-to-nothing when you're not in buy mode.
Right now, it's in buy mode.
Is this the big one? Or is this another false signal like we've seen in recent years? I don't know. What I do know is, the ingredients I look for are in place... As I showed you in May, biotech stocks are cheap, hated, and in an uptrend.
Remember... "If you catch just one biotech bull market in your lifetime, you may never have to work again."
This could be the one. Get on board – through BIB – if you're not on board already. Use a trailing stop, to protect your downside risk if I'm wrong. Otherwise, enjoy the ride...
Once the great bull market finally arrives, it could be the greatest trade you ever make.
Good investing,
Steve
Further Reading:
Last month, Larsen Kusick showed Growth Stock Wire readers a simple way to predict huge biotech gains.
For more on how biotech fits into the "cheap, hated, uptrend" framework, check out another recent essay from Steve: If You Catch One of These Booms, You May Never Have to Work Again.
Market NotesTHE BEST RISK/REWARD TRADE IN THE MARKET We kick off the second half of this year's Market Notes series with a trading idea: Buy gold stocks.
As we've noted several times in the past month, companies that produce gold are cheap by just about any metric you can find. And as our colleague Jeff Clark notes, the sector is due for an oversold rebound. We'll use today's chart to note that this trade is also a "heads I win a lot, tails I lose a little" situation...
You can size up the gold stock complex with the benchmark Gold Bugs Index (the "HUI"). Looking at the past two year's action in the HUI, you'll note the index has found buying support in the 500 range several times. This is the area where investors and traders find value in the "golds" and step in and buy.
A trader can use this 500 level as a "foothold" area to establish a trade in a few gold stocks or the big gold stock fund (GDX). If the golds fail to rally, you have a handy "get out" point near 500 (about nine points down from the current level). If the golds do stage a rally, you stand to make four, six, even eight times the amount at risk. We'll take those kinds of odds all day, every day.
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