Biotech Stocks: A Bumpy Ride to Recovery

Biotech stocks have had a rough time since their peak in early 2021. They didn't join the market's rebound in 2022, but this summer brought a change. These stocks are tricky because most of them are in the early stages of development. They often don't have earnings or steady revenue, relying instead on occasional milestone payments. This makes investing in them individually risky. The SPDR S&P Biotech ETF (XBI) offers a safer way to invest in this sector. It lets investors gain exposure to biotech stocks without the worry of a single drug's failure impacting their entire portfolio. XBI had a tough year, struggling below its 200-day moving average. Even after a strong signal in April, it still had a long way to go to reclaim this key trendline. Patience paid off when XBI finally retook its 200-day line in August. It was added to a trading strategy at this point. As is typical, some profits were taken off the table during a reversal day. The rest were sold the next day when the price fell below the entry point. Despite this, the trade ended with a small gain because of the earlier profit-taking. A few weeks later, XBI broke above resistance, and another attempt was made. This time, the position was trimmed early when progress stalled. However, the next day, the trimmed position was added back as strength returned. Unfortunately, XBI went sideways again, and the trade ended with a small loss. The strategy is to quickly exit positions that aren't performing well. Missing out on a market run doesn't mean you should avoid future trades. A reversal at the 10-day line provided another opportunity. This time, instead of taking profits during strength, the position was increased. Biotech stocks were one of the few areas performing well after a sell-off in October. However, profits were taken during a downside reversal, and the position was exited after XBI broke below the lows of the prior few days. With the strength shown at the end of the week, it might be worth considering biotech stocks for another try. It's important to remember that investing in biotech stocks can be volatile and risky. It's crucial to have a strategy and stick to it, even when faced with setbacks.