The markets continue to head higher despite corrections among some recent high fliers like F5 Networks (Nasdaq:FFIV) and Motricity (Nasdaq:MOTR). While participation in this rally has narrowed a bit, there are still many sectors that appear healthy. Traders that have been able to make the adjustment and follow the money as it rotates have been rewarded with great trading opportunities. One group to keep an eye out for moving forward is the biotech sector. (For background reading, see the Ups And Downs Of Biotechnology.)

In Pictures: Top 7 Technical Analysis Tools
This group has some very good looking charts and while each stock has an individual story related to a drug or product, their strong performance as a group shows that investors have been willing to put money to work in riskier asset classes. This is healthy behavior for an uptrending market, as investors are more concerned with maximizing their profit potential than with protecting existing capital.

ONYX Pharmaceuticals (Nasdaq:ONXX ) has been quietly stair stepping higher for several months and appears to be near the end of a consolidation. ONXX had cleared a base in November and after a tight consolidation rallied well into the $30s. It has since entered another consolidation between $34 and $38. It is currently pressing up against a trendline marking its most recent highs and could be close to attempting a breakout. Traders should monitor this test to see if ONXX is ready to resume its prior trend. (For more, see The Anatomy Of Trading Breakouts.)


Jazz Pharmaceuticals (Nasdaq:JAZZ) is another biotech that has been acting very well. JAZZ also cleared a consolidation back in November and more than doubled in price. It has refused to give up much of the rally as it consolidates and is trading in a very tight range just under $24 per share. Traders should keep a close eye on this level as a break above $24 would take JAZZ to all-time highs.


The chart for Spectrum Pharmaceuticals (Nasdaq:SPPI ) has a different look to it, but still possesses may similar qualities to that of JAZZ or ONXX. SPPI also rallied late in 2010 and has spent the early part of 2011 working off some of the buying pressure from the rally. These pauses in a stock allow money to rotate from prior holders to new ones and are an important part of a sustainable trend. SPPI recently cleared a narrow channel it was following as it pulled back from the $7 area and may have set an important low just under $6. This is the level traders should monitor as any break below this level would negate the current pattern.


AEterna Zentaris (Nasdaq:AEZS ) also recently cleared a narrow channel it was following as it pulled back from its recent highs. The $1.50 level held as support that lines up approximately with a prior high in September. Often prior resistance will become support and in this instance, it is now the important level to watch moving forward. AEZS should remain above this level on any weakness and could be on its way to attempt a breakout above $2. (For more, see Support And Resistance Reversals.)


The Bottom Line
Biotech stocks have historically been one of the riskiest asset classes, but they can offer outstanding trading opportunities as long as traders use proper asset allocation techniques and pay attention to scheduled announcements and drug reviews. While many of these biotech stocks look attractive, it's important as a trader to compensate for the additional risk with this group with proper portfolio allocation, or possibly even using options to hedge your position. Traders should plan for a complete catastrophe and position themselves so that a blow up in the stock will not severely hamper their portfolios.

Many stocks in this group closed out 2010 on a high note and have been in the process of consolidating those gains. They may be ready after this recent consolidation to resume their rallies and should be watched closely. With the market continuing to show strength, it has become a trader's job to simply continue looking for where the money is rotating next. This group has had a nice pause and remains in a viable trading position.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  2. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  3. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  4. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  5. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  6. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
  7. Stock Analysis

    Will "FANG" Stocks Outperform in 2016?

    Facebook held the most bullish accumulation-distribution pattern into year’s end, telling investors to focus on this issue in 2016.
  8. Chart Advisor

    Stocks At Buy Points In Healthy Uptrends

    These stocks are in healthy long-term uptrends, and a recent pullback presents a buying opportunity.
  9. Chart Advisor

    The Uptrend Is Reversing In Financials

    Active traders are turning to financials because the close below several key long-term support levels suggest that the uptrend is about to reverse,
  10. Chart Advisor

    These 3 Charts Suggest Bears Control The Commodity Markets

    Many investors are wondering if they should be betting on a trend reversal in commodities. These charts suggest that a reversal might be further out than many hope.
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
Trading Center