It already dropped 50% from ATH last January, not like it just started dropping. The monthly and yearly uptrend hasn't been broken since XBI began in '06 and that is showing a 82.75ish floor for both. Not saying it won't happen now or ever, just that it hasn't ever yet. Price is currently under 2018 levels.
I expect some big pharma acquisitions with those billions in covid cash, I think Pfizer made something like $36 billion just on the vax in 2021. There are also over 100 biotechs with a market cap under their current cash on hand. The sector got hammered all of 2021.
100% Agree there will be acquisitions in the sector. And I'm not saying it's not a good play. My only concern is the timing. If you look closely, the sell off has accelerated since the 1st of this year after breaking through resistance around thanksgiving. I'm just giving feedback as to why.
NEVER try to catch a falling knife. Nothing sucks worse than buying a stock after a 50% pullback only to see it drop another 20-30%.
We haven't seen inflation like this for 40 years. It may end up being less transitory than currently feared, but until there is evidence to the contrary, the playbook has changed. PE's contract when price of cash goes up, and companies with no earnings get vaporized. (or revalued properly depending on your perspective)
I wouldn't be surprised if it finds a bottom before the first acquisition happens. Personally, I'd rather give up a few points of upside by being a bit late while it finds a support level than getting in too early and having to eat a 20% loss out of the gate. If you decide to jump in now anyway, my suggestion would be to do it by selling a covered at-the-money put. The current Feb 18th $89 strike is currently earning $4.65 in premium. If the stock keeps going down and the option gets exercised, you own it for $84.35 rather than the current $89.32 or so, ($89- $4.65) If it goes up or sideways and the option doesn't get exercised, you still have the $4.65 to offset the purchase price should it take off to the upside without you.
I know people who do nothing but sell covered puts and calls. They do quite well and do so with reduced risk.
Good luck!
