It's All About Biotech: Stocks To Watch
Faraday Research | Jun 23, 2017 02:25PM ET
Michael Bay's latest installment in the Transformers series came out this week and based on the early reviews, it's worse than the rest. Instead of wasting a couple hours of your time on that particular mix of biological beings and technology, you should spend a couple minutes catching up on another, more exciting development in the biotechnology sphere, namely this week's big breakout in biotech stocks.
The world's largest biotech fund, the iShares Nasdaq Biotech ETF (NASDAQ:IBB), has had a quiet couple of months. For the last four, the fund has been consolidating in a tight range between about 285 and 303. That changed abruptly this week as prices surged above that range, hitting a high above 320.
Source: Stockcharts.com
As the daily chart above shows, IBB has already hit its "measured-move" objective of the range breakout. In other words, after being contained to an 18-point range for four months, IBB has surged over 18 points after breaking out this week. Given the rapid thrust higher, there's definitely a chance that we could see a profit-taking dip in the coming week, especially with the Fourth of July holiday looming the following week. That said, if we take a step back, there's reason for optimism in IBB from a longer-term perspective.
Source: Stockcharts.com
As the weekly chart above shows, IBB also broke out of a longer-term ascending triangle pattern this week. The "measured-move" objective of that setup actually suggests that IBB could revisit 2015's lofty highs, which would put it closer to 400(!) in the coming months. Of course no pattern is infallible and there will inevitably be setbacks along the way — even if IBB eventually rises to that aggressive target.
Fundamentally speaking, many biotech stocks have continued to increase their earnings and bolster pipelines over the last couple of years, while stock prices have held relatively steady or even pulled back. After a year and a half of relatively "quiet" price action, this week's price action may mark a major turning point for the planet's largest biotech ETF.
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Getting a bit more granular, IBB's largest holdings include Celgene (NASDAQ:CELG), Biogen (NASDAQ:BIIB), (NASDAQ:AMGN), Regeneron Pharmaceuticals (NASDAQ:REGN) and Gilead Sciences (NASDAQ:GILD), all of which traded higher by at least 5% this week. Indeed, REGN rallied by a staggering 11.5% in the four full trading days since Monday's open.
While we wouldn't be surprised to see a pullback in these names over the next week, the big breakout in IBB bodes well for their longer-term outlook. We're currently viewing short-term dips as buying opportunities as long as IBB holds above 305.
While many are wasting their time and money watching a movie about transforming cars, our readers should be sure to note the more interesting "transformation" taking place in biotech stocks
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