As much of the world population continues to focus its attention on the spread of the coronavirus, it is just about impossible to ignore the important role of the health care sector and the various industries that make it up. For investors, it reaffirms the place within portfolios for those companies that seek to discover, develop, and produce drugs and medication that aim to keep the population healthy. In this article, we'll take a look at three charts from across the biotech sector and determine why these charts could be of specific interest to active traders over the months to come.
iShares Nasdaq Biotechnology ETF (IBB)
Investors who want to gain a sense of where broad market segments such as biotech are headed often turn to exchange-trade products such as the iShares Nasdaq Biotechnology ETF (IBB). As you can see from the chart below, the rally near the end of 2019 triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle), which for followers of technical analysis signals the beginning of a major long-term uptrend.
While practically no asset class has been sheltered from heightened volatility, the pullback toward the combined support of the dotted trendline and the 200-day moving average could be presenting traders with a buying opportunity. From a risk-management perspective, stop-loss orders will likely be placed below one of the dotted trendlines, depending on risk tolerance.
Gilead Sciences, Inc. (GILD)
As the top holding of the IBB ETF and with the rise in media attention over the company's products, Gilead Sciences, Inc. (GILD) will most likely be closely watched by active traders over the weeks and months ahead. As you can see on the chart below, the price has recently moved beyond the resistance of several influential trendlines on much higher-than-average volume.
This breakout suggests that the period of consolidation is over and that a new uptrend could just be getting underway. Followers of technical analysis will most likely place their stop-loss orders below the dotted trendlines at $67.57 and $65.25, which are equal to the positions of the 50-day and 200-day moving averages.
Vertex Pharmaceuticals Incorporated (VRTX)
Another biotech company and top holding of the IBB ETF that could capture the attention of active traders in the weeks ahead is Vertex Pharmaceuticals Incorporated (VRTX). As you can see from the weekly chart below, the stock has been trading within a defined channel pattern since 2018. You'll also notice that the price moved above the upper trendline and has since pulled back to test the strength of the newly formed support.
Based on the chart, we'd expect traders to hold a bullish outlook on the stock until the price closes below the dotted trendline or the 50-week moving average near $195.68. Longer-term investors could even position their stop-losses below the lower trendline or the 200-week average, depending on their investment horizon.
The Bottom Line
The increased focus on coronavirus has put the health care sector and its industries in the spotlight over the past several weeks. As shown on the charts above, traders with a long-term view could be well served to use the sell-off in prices as a buying opportunity and protect against a further sell-off by placing stop-losses below the identified support levels.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.