A basket of biotech stocks have surged to new highs in recent weeks, lifting the iShares Nasdaq Biotechnology Index Fund ETF (IBB) within 15 points of 2019 resistance. This positioning bodes well for additional gains that could underpin the sector's rise to market leadership in coming months. While small speculative stocks have consumed a big chunk of buying power, several blue chips are posting new highs as well.
These higher-capitalized issues could make better long-term investments because most small companies are destined to fail in their efforts. In addition, a few of those issues are well known in the trading community for sucking in poorly informed investors every time there's a virus or disease scare somewhere in the world. These dogs tend to bark in the early stages of every outbreak and then trap buyers in ugly declines that drop their stock prices back to fair value.
Seattle Genetics, Inc. (SGEN) has risen to elite status in recent years and now holds a $21.1 billion market capitalization. The stock posted an all-time high at $128 in Tuesday's session, lifting above 2019 resistance at $122. Better yet, advances in a number of cancer therapies are driving the uptick rather than the hunt for a virus cure. Even so, accumulation readings have failed to catch up with price action, suggesting a two-sided tape through the second quarter.
The stock broke out to a new high in 2010 and entered a powerful trend advance, lifting from the low teens into the 2014 high at $55.99. It took more than two years to mount that resistance level, yielding a shallow uptrend, followed by a high-percentage rally that stalled in the $120s in the fourth quarter of 2019. A February breakout attempt failed, yielding a decline to a five-month low, followed by an impressive surge that has now reached new highs.
Boston-based Vertex Pharmaceuticals Incorporate (VRTX) carries a $65. 6 billion market capitalization, making it the fourth largest sector fund component. While the company has initiated coronavirus development in recent weeks, an impressive drug pipeline has underpinned 2020 gains that lifted the stock to an all-time high at $267 on Tuesday. Accumulation readings have hit new highs as well, potentially offering a lower-risk buying opportunity than Seattle Genetics.
Vertex stock completed a round trip into the 2000 high at $99.25 in 2014 and broke out, reaching $143.45 in the third quarter of 2015. A correction into the end of 2016 relinquished half of its value, ahead of a recovery wave that triggered a fresh breakout in July 2017. A shallow advance accelerated at the end of 2019, hitting an all-time high at $249.85 on Feb. 19. Price action has now recouped the 53 points lost into March, yielding a breakout that is likely to get tested in coming sessions.
At a $55.4 billion market capitalization, Regeneron Pharmaceuticals, Inc. (REGN) is one of the largest biotech companies now performing COVID-19 clinical trials. Regeneron stock hit a two-year high in March while the majority of the stock universe was hitting 52-week lows, but it has now entered a broad trading range, shaking out weak hands. Accumulation readings are sitting at three-year highs, highlighting strong investor interest.
A 2011 breakout above the 2000 high at $57.38 attracted strong momentum buying interest, lifting to an all-time high at $605.93 in August 2015. Price action into the second half of 2019 carved a long series of lower highs and lower lows, dropping the stock to a six-year low. The rally into March broke the lower highs trendline, stalling about 15 points below the 2017 peak. A continued advance will be needed to signal the end of the multi-year correction and set the stage for an assault on the all-time high.
The Bottom Line
Biotech stocks have shown resilience in recent weeks, with a handful of blue chips lifting to new highs.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.