Donald Trump said “Pharma” right out of the gate and he also said “Healthcare” and something like ‘broken’ or ‘a mess’ or ‘needs to be fixed’ and they sold everything. Down went my PFE and AMGN, which I guess was semi-rational if a pure knee-jerk, JNJ (it’s part Medical Device, part Consumer and part Pharma) and ridiculously, the IHI Medical Devices iShares (an NFTRH+ highlight from Nov. 4). I also own BSX (highlighted in NFTRH+ notes in weekly reports before the big upside of late), an individual device maker (and former customer of mine). On the latter, we had a very profitable long trade previously, then a modest short profit and now, on paper at least, a very nice long again. [edit: if memory serves, I think there was a limited loss on another long position (not NFTRH+, as there was no setup) in there as well… so easy with the crowing there bright boy].
Back on the market, you can at least see the rationale for a bunch of men, women, robots and substance abusers wetting their pants about the first two stocks above; but IHI? Go ahead and sell it (hopefully for profit, which is what I’ve got on paper) because it’s at target. But don’t sell because… Trump is making America great again by taming the Pharma industry. XLV and IYH went down and they have heavy weightings in Pharma stocks; but Med Dev is completely different. These companies are generally subject to competitive pressure that keeps prices down. There is no way the admin will want to attack Medtronic, Baxter, Boston Scientific and the like. They employ people making things… the whole point!
Here’s the chart of IHI, ending the day in good standing after the shakeout. The pattern is near target but wouldn’t it have been better to sell on your terms, at 140, than on a deranged market’s terms? As noted during the press conference, the drop in IHI was b/s.
Aside from the technicals and Trump hype, the 21st Century Cures Act not only benefits Pharma and Biotech companies, it clears red tape during the FDA approval process for good old fashioned device makers.
Trump is not targeting these manufacturers. Period. So why did the market sell them when he said “Pharma”? I think we all know the answer to that question; because the market is an emotional, hyper aware, interconnected amalgam of man and machine, which brings us right back around full circle to… Psychology, per yesterday’s irritable post on the subject.
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