(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Biotech shares may be on the verge of a rebound over the next few weeks, as shares of the NASDAQ Biotech ETF (IBB) have tested and held a critical support level at $101. Shares of Gilead Sciences Inc. (GILD), Incyte Corp. (INCY), bluebird bio Inc. (BLUE), and Celgene Corp. (CELG), are showing signs of a potential rebound in the coming weeks, with the potential to rise by 9% or more.
Except for Gilead, the other three stocks have had a terrible start to 2018, with shares of Celgene down by over 13%, while Incyte has fallen by nearly 11%. It may be too soon to call a rebound anything more than a short-term bounce; a longer-term rise will be dependent upon each companies ability to push revenue and earnings higher. (For related reading, see also: Active Traders Turn Bullish on Biotech.)
Shares of Celgene have fallen by over 39% over the past year, and every attempt for the stock to rise in the past has failed miserably leading to a series of lower lows. Shares have increased from their recent lows around $86, but more importantly, the relative strength index (RSI) is showing signs of breaking out. The RSI has been trending higher since reaching a low below 20 in October and has slowly been trending higher, while the stock has been falling—a bullish divergence. Additionally, with the RSI rising above the downtrend, it could help push shares to the next significant support level around $102.50, a rise of roughly 12% from its current price around $91.
Gilead shares could be set to rebound by about 9%, with the stock rising to around $82.25, the next technical resistance level. The stock has given up most of its gains in 2018, and like Celgene, the RSI has been trending higher as well. The stock should have a clear path higher over the short term. (For more, see also: Investing in Biotech: Is It Worth the Risk?)
Incyte has seen its stock test support at 81.30 on three occasions. With no levels of resistance in place, should the bounce follow through, the stock could rise back towards $93—a rise of about 11% from its current price around $83.80.
Bluebird has recently broken free of a significant downtrend that has been in place since mid-March, resulting in the stock falling nearly 38% from its high around $235. With the stock down sharply, a rebound could occur with shares rising back to roughly $196, about 13% higher than its current price around $173.
These four biotechs have all had a rough start to 2018, and while it is too soon to know if this is the beginning of a longer-term trend higher. It does seem that a short-term rebound could at least be in the works.
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.