3 Biotech Stocks on the Verge of Major Breakouts

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Biotech stocks have been grinding higher since the Nasdaq Biotech ETF (IBB) bottomed in mid-November. But shares of the ETF are nearing a significant breakout, one which could send the ETF higher by nearly 9%. Meanwhile, Amgen Inc. (AMGN), Biogen Inc. (BIIB) and Jazz Pharmaceuticals plc. (JAZZ) are also nearing significant breakouts, with all three having the potential to rise nearly 15% or more. 

Nasdaq Biotech ETF

The chart of the Biotech ETF shows how the group has been trending higher over the past two months. With the ETF nearing a technical resistance level around $114, an increase above that resistance level could see the ETF move higher by about 9% on towards $122. It would be the second such attempt the ETF is making to break out and rise above $114. The last time was back in mid-October, but it failed, leading a nearly 12% correction in the group. But this time seems different because the relative strength index (RSI) has been trending higher. On the last attempt the breakout came with an RSI trending lower—a bearish divergence. (For more, see also: Why Biotech Stocks Are Nearing a Rebound.)


Additionally, we have some positive momentum occurring in some of the larger weighted companies in the ETF.  Biogen carries a weighting of over 8%. The stock is nearing a major breakout as well, and should the stock cross $355 it would trigger a breakout, which could send shares rising by about 17$ on towards $400. Again like the Biotech ETF, the RSI for Biogen has been trending higher and is well below 70, meaning shares are not in overbought territory yet. Additionally, the company is scheduled to report fourth-quarter 2017 results on January 25, which could act as the positive catalyst. 


Jazz Pharmaceuticals has been trending lower since July of 2015, but like the other is also on the cusp of a major breakout, and has the potential to rise by nearly 28% to about $190, from its current price around $148. The stock is just below a multi-year downtrend, which helped to form a considerable symmetrical triangle. A move higher, above the downtrend, would trigger that breakout. 


Finally, Amgen is nearing a breakout should the stock cross over $192. Shares have already climbed by nearly 15% since bottoming in November around 167. A similar rise takes the stock to about $191. Like Biogen, Amgen accounts for 8% of the Nasdaq Biotech ETF. (For more, see also: Why Amgen's Stock May Rise Over 30%: Todd Gordon.)

The group appears poised to breakout, and with earnings season looming, that may be the boost these stocks and the sector need to start rising in a big way again. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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