Introduction
Sometimes P/Es shrink, and then the bottom falls out of the business or the sector. Sometimes it's a buying opportunity. Mr. Market does not tell you in advance. Is the larger cap biotech sector (NASDAQ:IBB) putting in a bottom here, ready to resume outperforming the S&P 500 (NYSEARCA:SPY), or has it risen in 2017 in "dead cat" fashion, only to underperform the broad indices once again?
The following chart shows the massive outperformance of biotechs, using the large cap-oriented IBB ETF as the comparator, against the SPY, on a 10-year basis. If any readers are old enough to have weathered the 1987 bear market, which was about a 1/3 off sale and lasted less than two months from its start after Labor Day and its end in late October, the chart of IBB looks a lot like that of the S&P 500 or DJIA (NYSEARCA:DIA): a sharp and relatively brief interruption of a bull market with a long way to go; just a reversion back to a less accelerated uptrend.
