Welcome back to two fabulous leadership groups, the airlines and the biotechs. No market can rally hard without leaders and these two groups have been integral to the huge multi-year run that we have seen.
But both had been derailed of late. The stocks of the airlines plummeted because of Ebola scares. Nothing discourages air travel like stories about how planes are being held on tarmacs or passengers are being grilled about their time in the planes with potential victims.
But the panic, which brought more rules and safeguards, is now subsiding. We are seeing a positive double whammy. Costs are coming down now because of jet fuel, something that couldn't be priced in while Ebola rocked the U.S. Now, there are newly announced fare increases.
It's a remarkable confluence and it is occurring when hedge funds had shorted the group heavily, betting that someone in the circle of 40 acquaintances and emergency medical workers who handled the stricken victim would have contracted the disease. When people in close proximity to the deceased man fail to come down with it, then plane travel is not an issue.
The biotechs suffered from worries about drug pricing, particularly Solvaldi from Gilead (GILD). The group's been horrendous ever since Johnson & Johnson (JNJ) signaled on its call that there could be a price war in the Hepatitis C treatments out there.
Gilead is the bellwether: It has the ability to send them all down. It seems as though people have forgotten about the potential price war. And they are now taking into account that Celgene (CELG) may have a promising drug for Crohn's disease that isn't in the numbers and Regeneron (REGN) has won a head-to-head test with Lucentis with its better treatment for a particular kind of eye disease that is a needle-mover.
Now, this is very important: Celgene is set to report earnings this week and it trades on drug approvals, not earnings per share. In fact, if you check the trading of this stock, you will see how it has traditionally gotten hit on its earnings reports and then has rallied in the interim. So if you haven't taken action, you should wait. You just might get your chance.
Yep, leadership is back and it is immensely comforting to see it. And given the propensity of the hedge funds to be wrong on pretty much every one of these moves, these leaders may not yet be finished with their runs.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long JNJ.