(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Biotech stocks are hot and have rallied by 13% as measured by the iShares Nasdaq Biotechnology ETF (IBB) since late May. The recent increase has helped the ETF rise by 14% for the year, beating the S&P 500's gain of 9%. Now the ETF is breaking out and more significant gains may be on the way.
Companies like Celgene Corp. (CELG), Regeneron Pharmaceuticals Inc. (REGN) and Incyte Corp. (INCY) may rise by 10% or more in the coming weeks based on the technical charts, leading the charge higher. The three stocks account for almost a 16% weighting in the Nasdaq Biotech ETF, which holds a total of 191 stocks.
NASDAQ Biotech ETF
The Nasdaq Biotech ETF is breaking out as it rises above a long-term downtrend that has been in place since the summer of 2015. Additionally, it is also rising above a level of technical resistance at $121 that has been in place since the fall of 2015. The ETF has now increased above two critical levels of technical resistance. That may help send the ETF on its way to almost $133, a rise of almost 10%.
Celgene's stock continues its rise and is now up 20% from its lows at the end of May. Shares may be about to surge an extra 17% from its current price of almost $94. The next level of resistance for Celgene comes around $97. Should the stock rise above that price, it then has room to increase to $110. Another bullish sign is the relative strength index (RSI), which has been trending higher. It suggests bullish momentum continues to move into the stock. The RSI has been rising since it bottomed at oversold levels well below 30 in November.
Incyte is also breaking out and is almost 20% off its lows from early August. Now the stock is nearing a big breakout should it rise above $74.25. The stock put in a bullish reversal pattern known as a double bottom and may rally as high as $85, an increase of almost 15% from its current price of $74. Additionally, that would fill a technical gap created when shares plunged at the beginning of April.
Regeneron is up almost 40% from its lows of early May, and shares could increase by another 10%, from its current price of $405. The stock is breaking out, rising above resistance at $394. The next level of resistance for the stock comes around $440.
Should biotech stocks continue to rise, as the charts would indicate, they could provide an added an extra boost to the broader equity market.
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 holdings. Information 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.