(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Biotech stocks are breaking out, with the SPDR S&P Biotech ETF (XBI) gearing up for what could be a significant rise higher. Stock such as Intercept Pharmaceuticals, Inc. (ICPT), Seattle Genetics, Inc. (SGEN), Exact Sciences Corp. (EXAS) and Ultragenyx Pharmaceutical Inc. (RARE) may be poised to lead the group higher, with each of the four stocks set to rise by 10% or more over the coming weeks.
An article on Investopedia on May 4 noted the group was beginning to show signs of a bottoming process forming. Since that time the group has turned higher, and now technical analysis suggests more gains may lie ahead for the sector. (For more, see also: Biotechs Set to Breakout.)
The SPDR Biotech ETF has been trending higher since February of 2016 and appears to have broken out of its recent period of consolidation. The ETF managed to stay above a critical support level at $85 and has now broken out, rising above a key downtrend, setting the ETF for a move higher back to its all-time highs around $98, a jump of about 7%. Additionally, the relative strength index (RSI) has also broken out of its downtrend.
Exact Sciences has also broken out of its technical downtrend in recent days, rising above $51, while its RSI has also broken above a technical downtrend. It could result in shares rising all the way back to around $60, a jump of over 14%. (For more, see also: Top 5 Biotech Stocks for 2018.)
Shares of Seattle Genetics have been consolidating since peaking around $73 in late 2016, but now shares appear poised to break out. The stock has a symmetrical triangle pattern nearing completion. Shares of the biotech have a good shot of breaking out, and should it rise above $59, it could trigger a nearly 15% jump back to $65.50.
Ultragenyx has also broken out, rising above a long-term downtrend, and a key technical resistance level at $57.50. Shares could be set to rise by over 14% to around $73.
Intercept could be the biggest of the gainers, but it also has the most stringent road, because there is a substantial layer of resistance in the chart around $74. But should the shares breakout rising above resistance, it could climb all the way back to roughly $87, a jump of over 17%. The RSI has also been trending higher, another bullish signal.
The biotech sector is looking very strong and is in a good position to continue to rise.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the founder of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of two to three 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 recommendation made during the past twelve months. Past performance is not indicative of future performance.