There tends to be a seasonal pattern that emerges concerning investment cycles. Traditionally, you get the summer highs followed by a crash into the seasonal Oct/Nov low. As long as that panic low holds, then the market will run off to new highs once more. However, when the Oct/Nov period produces a high, then that is far more serious and a decline thereafter typically follows into often the first quarter of the following year.
That was how 2018 unfolded. In January 2018, the market produced a momentum high and then had a greater than 10% flash correction in two weeks to produce a seasonal low in February 2018. From the February 2018 low, it went on to make a summer high (with less momentum) in August 2018, then traded sideways in September to early October 2018. Then it came the greater than 20% correction from October to December 2018. 2021 had a very similar pattern to 2018. The market had a greater than 10% flash correction in February 2021. Now the market has traded with less momentum and narrower breadth to make a summer high. It remains to be seen how September and October will play out.
At the moment, we remain skeptical about the market’s true intention. The broad market valuation is so high therefore it is vulnerable to a correction. The sooner the correction occurs, the better it is for the market. If it drags on to make a high in Oct/Nov, it would invite a bigger correction, the correction could possibly run into Q1 2022. In order for the market to stay in a bullish posture, the coming correction has to be around 20%. If the correction runs deep into 30%, then the 4-year cycle had turned bearish.
Based on our historical 4-year cycle work, we believe the current 4-year cycle (March 2020-?) is a bullish cycle, meaning a summer high or an Oct/Nov high would not be the 4-year cycle high. Therefore the coming correction is a buying opportunity.
The COVID delta variant is raging in Florida where we are based. We have seen more and more people getting vaccinated. The mRNA vaccines appear not to be effective in preventing infection, but does mitigate symptoms and or the severity of the virus attack. Moderna MRNA stock had a great run while the entire world was engaged in the fight with COVID. Moderna had a jump start in front of every other bio firm in terms of getting the sponsorship from the US government. Moderna was able to produce a protocol vaccine in February 2020 and achieved emergency authorization in November 2020. Arcturus Therapeutics (ticker ARCT) got started in making mRNA vaccine in July 2020. ARCT rode the COVD vaccine wave to make a high in December 2020 and since then it has corrected 80% (from 129.71 to 24.87).
The reasons for the epic drama:
- It had a massive run prior to the correction. The March 2020 low was 8.51. The trip from 8.51 to 129.71 was massive.
- The company reported the vaccine trial data in December 2020 and the investors interpreted the data negatively and deemed ARCT vaccine less potent due to the lower number in antibodies generated in the blood. The stock was down 54% that day.
- While investors were originally disappointed that its vaccine’s neutralizing antibodies (nAbs) were lower than those that Pfizer and Moderna created, immunogenicity is not so simple. Arcturus believes that the strong T-cell response its vaccine elicited could provide a strong and durable response against SARS-CoV-2. Arcturus also was initiated with an overweight at Raymond James on Thursday, analyst Jim Birchenough noted that Arcturus validated its platform and differentiation of its self-amplifying mRNA delivery.
- It didn’t matter ARCT reported good clinical news on May 10th during the Q1 earnings call. The correction was underway and it finally bottomed on May 13th at 24.87.
- ARCT traded up 68% on Tuesday after announcing that Sanofi (SNY) would be acquiring Translate Bio (TBIO), an mRNA therapeutics company focused on rare diseases. The news that Arcturus struck a deal to manufacture vaccines for new SARS-CoV-2 variants in Singapore and Vietnam also apparently contributed to the upside. After a correction of 23% on Wednesday, Arcturus continued to trade up 20% on Thursday, likely in sympathy with the gene-editing and other genomics stocks.
The price action in ARCT last week essentially reversed the down trend. The 24.87 bottom is in place as reference for stoploss. It closed at 49.30 last Friday. So the stoploss is very large.
That is the reality of owning a hot bio stock. The volatility is very tough for investors. However, it is not as bad as bitcoin. At least it is not in an asset class that could be in the crossfire with the worldwide governments. We are bitcoin skeptics, never really put any money into the crypto craze.
We will open a small position with ARCT tomorrow. The reward out weighs the volatility in our opinion.
