From a macro-level perspective, the advances in biotechnology and genetic engineering that are set to take place over the coming decade will fundamentally change how we as humans live. The impacts of the scientific breakthroughs are currently the material of science fiction novels, but as investors, we are starting to see glimmers of these changes become reality.
While it may not have been top of mind of late due to increased talk of trade war, long-term investors would be prudent to start thinking about how to add exposure to this important theme. As we'll discuss in analyzing the charts below, recent price action and interesting patterns suggest that now could be as good of a time as any to buy into biotechnology.
Invesco Dynamic Biotechnology & Genome ETF (PBE)
For investors who don't follow the biotech sector, it can often be an intimidating task to figure out where to start. Luckily, with the rise in popularity of niche exchange-traded products such as the Invesco Dynamic Biotechnology & Genome ETF (PBE), it has become quite easy to gain exposure to a basket of leading companies from within a very specialized field.
Taking a look at the chart, you can see that the bulls have recently sent the price above the resistance of its 200-day moving average (red line). The significance of the move should not go unnoticed because most other sectors have dropped well below long-term support levels on increased fear of geopolitical trade war. It is interesting to note how the 200-day moving average has reversed its role and is now acting as a level of support. Active traders will likely use the moving average as a guide for determining the placement of their buy and stop orders.
The bullish crossover between both the 50-day and 200-day moving averages, shown by the blue circle, is known as the golden crossover and is commonly used to mark the beginning of a major long-term uptrend. Traders will likely use this buy sign and close proximity to major support as justification for entering positions as close to current levels as possible.
Ionis Pharmaceuticals, Inc. (IONS)
As mentioned above, picking out biotech companies to invest in can be a daunting task. For many, one method that could be worth considering is analyzing the top holdings of niche funds such as PBE. With a weighting of 5.21%, Ionis Pharmaceuticals, Inc. (IONS), which is the third largest position of PBE, currently looks poised to make a move higher.
As you can see from the chart, the price has recently pulled back toward the 200-day moving average, which has proven to be an influential level of support in the past. Recent price action suggests that the bulls have not lost conviction in the uptrend and that a reversal could be underway.
Incyte Corporation (INCY)
Another biotech company and major holding of the PBE ETF that could be worth a closer look is Incyte Corporation (INCY). As you can see from the chart below, the price of the stock is trading within a defined triangle pattern and has held above the support of its 200-day moving average on each attempted pullback since April. The price action suggests that the bulls are in control of the momentum and that a move toward the horizontal trendline is likely. In the event of a breakout, active traders will likely set their target prices near $102, which is equal to the entry price plus the height of the pattern.
The Bottom Line
Most of the market has been moving lower in recent weeks on increased volatility from heightened risk of trade war. As discussed above, one segment that seems to be countering the trend is biotechnology and genetic engineering. While broad fundamental trends will likely drive this sector higher into the future, shorter-term chart patterns are suggesting that now could be a good time to buy.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.