Health care-related stock prices have bounced sharply higher over the past several weeks along with the broader market. As the work in health care, pharmaceuticals, and diagnostics remains in focus, one niche segment that has also been dominating the attention of active traders is biotechnology. In this article, we'll take a look at several charts from across the sector and try to determine how followers of technical analysis will be positioning themselves over the weeks and months ahead.
SPDR S&P Biotech ETF (XBI)
Traders looking to get a sense of where a market segment is headed often turn to popular exchange-traded products such as the SPDR S&P Biotech ETF (XBI). As you can see from the chart below, the price of the fund has bounced sharply off of the March lows, and it has since moved back above the 200-day moving average.
This type of price action along with the move back above the highs set earlier in 2020 suggest that the bulls are in control of the long-term momentum. The recent move is also about to trigger a bullish crossover between the 50-day and 200-day moving averages, which could be a catalyst for even more buying pressure over the weeks ahead.
Immunomedics, Inc. (IMMU)
It can often be a daunting task to find biotech stocks to buy since most people aren't well acquainted with the products or companies within this field. Some traders may choose to analyze the top holdings of funds such as XBI, which leads to companies such as Immunomedics, Inc. (IMMU).
As you can see from the chart below, the bulls have been in control of the momentum for most of the past year. The recent surge in momentum has also triggered a bullish crossover between the 50-day and 200-day moving averages, which will likely be used by traders to mark the start of a major uptrend.
Exelixis, Inc. (EXEL)
Another top holding of the XBI ETF that could find its way onto the radar of active traders is Exelixis, Inc. (EXEL). As you can see below, the breakout above the 200-day moving average has triggered a bullish crossover between the 50-day and 200-day moving averages.
As discussed above, this is a buy signal that often marks the beginning of a major uptrend, and it clearly shows that the bias is in the favor of the bulls. From a risk-management perspective, traders will most likely set stop-loss orders below the horizontal trendline near $22 or the 200-day moving average near $19, depending on risk tolerance and investment horizon.
The Bottom Line
Biotechnology is a niche segment of the market that has been capturing the attention of active traders over the past several weeks. While the sector is often synonymous with short-term volatility, the chart patterns discussed above suggest that the long-term trend is in favor of the bulls and could be in the early stages of a move higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.