Stock Market Comment: Not everyone may lose on virus outbreak

• Coronavirus scares investors all around the World

• Biotechs race to develop cure for the virus

• WHO hints at a potential, effective drug

• Medical equipment stocks in demand

Recent surge in new coronavirus cases outside China, mainly in South Korea and Italy, has caught investors off-guard. Global stock market indices plummeted at the beginning of the week with Dow Jones experiencing the biggest one-day drop since February 2018. Amid such a broad sell-off, one may wonder whether there are companies that could benefit from the coronavirus outbreak?

Biotechs in the spotlight

As major coronavirus outbreaks began to surface outside China, finding a cure became even more important. Having said that, it should not be hard to point to an industry that could benefit from the outbreak. Biotech companies race to develop vaccines and treatments for the novel coronavirus and the first one to show an effective cure is likely to draw investors’ attention. However, how can investors know which company will be the first one? They cannot but, fortunately, they do not have to guess. Traders can gain exposure to the US biotech sector by taking a position on the USBIOT index. The index tracks performance of the 30 largest companies with direct exposure to the biotech industry. While the index also suffered a drop this week, it was much smaller than the one of S&P 500.

US Biotech index (USBIOT) painted a double top near the 1165 pts handle before broad market turned lower on coronavirus concerns. USBIOT realized the range of the pattern and halted decline at 23.6% Fibo level of the upward move started in October 2019. The index dropped 3.75% this week while S&P 500  declined 6.6%. Range of the largest correction in the current upward impulse suggests that final resistance can be found in the 1065 pts area. However, in case a rebound is started, the first target for bulls can be found at 1150 pts swing level. Source: xStation5

WHO says Gilead’s drug looks promising

Nevertheless, the World Health Organization may have given investors a hint on who will be the first to develop a cure. Bruce Aylward, Assistant Director-General at WHO, said on Monday that Remdesivir drug developed by the US company, Gilead Sciences (GILD.US), may be the only one so far to show efficacy. Samples of the treatment were sent to Wuhan and will be applied to 761 patients. Results of the trials will be made public on April 27 therefore it could be a big day for the company. Stock jumped 4.6% on the day the comment was made and the United States announced trials of the drug the next day. Surge continued and the share price reached $75 - the highest level since October 2018. Gilead Sciences is a member of the USBIOT index mentioned in the earlier paragraph.

In spite of a steep sell-off on the US stock market this week, Gilead Science extended weekly gain to over 8% yesterday. Drug developed by the company is being tested as a possible cure for the novel coronavirus. However, it should be noted that in case tests fail to show promising results, shares may be set for a reversal. The closest support zone can be found at $72.50 and $68.50. On the other hand, the stock has room to rally an additional 3% as the nearest resistance can be found at around $77.50. Source: xStation5 

Medical equipment stocks in demand

While biotechs may develop treatment for the virus or not, there is a group of companies that already sees increased interest in their products - surgical masks and gloves manufacturers. Surge in demand caused shortages and producers like 3M (MMM.US) decided to ramp up production. However, it should be said that there are few companies that focus solely on facemask production. “Health Care” business unit of 3M accounted for 23% of total revenue in 2019 and facemask are not the only product it sells. Polish company Mercator Medical (MRC.PL) is much smaller than 3M but has much higher relative exposure to the facemask and gloves market. Share price performance shows that investors are very interested in such stocks as it has surged over 100% since January 24.

Shares of Polish medical equipment manufacturer Mercator Medical (MRC.PW) are having a time of their life due to coronavirus outbreak. The stock surged over 100% since the outbreak started and reached a new intraday all-time high yesterday. A pullback can be observed today but shares of the company could remain in demand as long as the virus spreads. Source: xStation5

Gaming industry to benefit from the outbreak?

Last but not least, drugmakers and medical equipment manufacturers are not the only companies, who may benefit from an ongoing outbreak. Data shows that residents of Wuhan city have downloaded much more games than usual since the coronavirus emerged. This should not come as a surprise as video games may be a perfect way to kill time during a lockdown period. Situation may have a positive impact on earnings of gaming companies in the quarter. While it is hard to single out one company who may be the biggest winner in the sector, investors can take on exposure to the US gaming sector index via USGAME contracts. However, the index does not look to be as resilient as USBIOT and is declining at a similar pace as S&P 500.

US gaming sector index (USGAME) slid from an all-time high at 1400 pts and broke below the upward trendline. However, the drop has been halted at the 1275 pts handle, that also served as a floor at the end of January. The index made an attempt of breaking back above the trendline yesterday but failed. Should downward move resume, the index may look towards the final support at the lower limit of the Overbalance structure (1200 pts). However, the potential target of the double top pattern points to a drop to as low as 1150 pts. Source: xStation5