Active traders spend countless hours scouring the markets for ideal scenarios in which the risk-to-reward ratio is clearly in their favor. In today's market, it appears as though one of the most lucrative trading opportunities is presenting itself in the biotechnology sector. In this article, we take a look at several key charts suggesting that now could be the ideal time to add exposure to biotech. (For more, see: The Industry Handbook: Biotechnology.)

iShares Nasdaq Biotechnology ETF (IBB)

When it comes to investing in biotechnology, many active traders turn their attention to sector-specific exchange-traded funds such as the iShares Nasdaq Biotechnology ETF. More specifically, with total net assets of $9.3 billion and an expense ratio of 0.47%, there are few funds for trading developments in biotech that are in the same class as IBB.

Taking a look at the chart below, you can see that the price was recently able to find support near the 200-day moving average, and the subsequent bounce higher has pushed the price above a key trendline​. For those who use technical analysis as part of their trading strategy, it is common to see a breakout and retest of the newfound support. The pullback is currently providing traders with one of the best risk-to-reward ratios found anywhere in the public markets. Based on this chart, stop-loss orders will likely be placed below either the 50-day or 200-day moving average in case of a sudden shift in fundamentals. Pending any undue surprises, active traders will hold a bullish outlook on biotech, and now could be the best time in 2017 to add a position. (For more, see: A Primer on the Biotech Sector.)

Technical chart showing the performance of the iShares Nasdaq Biotechnology ETF (IBB)

Celgene Corporation (CELG)

One of the best methods for finding quality trading opportunities within niche sectors such as biotech is to investigate the top holdings of funds such as IBB. On the chart of Celgene, which makes up 8.64% of IBB, the price recently surpassed the resistance of a major trendline​. The breakout, as shown by the blue circle, is a clear technical signal that the bulls are in control of the momentum and that prices could be headed higher from here. Strategic active traders will look to enter a position as close to the support level as possible to maximize the risk/reward, or they may choose to give their position some room by placing stops below either the 50-day or 200-day moving average, depending on risk tolerance. (For more, see: The Ups and Downs of Biotechnology.)

Technical chart showing the performance of Celgene Corporation (CELG) stock

Gilead Sciences, Inc. (GILD)

In the world of biotechnology, you can't go too far before running into Gilead Sciences. With a market capitalization of more than $95 billion, there are few biotechnology companies with this type of scale and breadth in their pipeline. Taking a look at the chart, you can see that Gilead Sciences is also a favorite among active traders because the 50-day moving average has recently crossed above the 200-day moving average (shown by the blue circle). Traders typically use this common long-term buy signal to mark the beginning of a long-term uptrend, and it could be a good opportunity for bullish traders to open a position. (For more, see: What Are the Best Bets in Biotech?)

Technical chart showing the performance of Gilead Sciences, Inc. (GILD) stock

The Bottom Line

It can be an extremely time-extensive task for active traders for find quality trading opportunities. Based on the charts discussed above, it is worth taking a closer look at the biotech sector, and several of the major names could currently be presenting the best opportunity so far in 2017 for strategic traders to take a position. (For more, see: The Reason for the Big Rise in Biotech Stocks.)

Charts courtesy of At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.


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