(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 nearing a breakout, based on technical analysis, using the iShares Nasdaq Biotech ETF (IBB ) as a proxy. The ETF has stubbornly stayed above $100 after multiple attempts for sellers break to the critical support level. Additionally, the underlying stocks within the ETF are also starting to show signs of a bottoming process as well.
Stocks like Celgene Corp. (CELG ), Biogen Inc. (BIIB) and Amgen Inc. (AMGN) are among the most significant names in the sector. For the first time in months, the three stocks all also appear to be turning higher and that could be a positive sign not just for the companies but the sector. All three stocks have a weighting in the ETF of roughly 8% each.
The $100 level in the biotech ETF has acted as both resistance and support since July 2016. Since rising firmly above the $100 level in June 2017, the ETF has been able to hold firmly above it. That strong support is likely to serve as a region that should help to see the ETF and the sector find a rebound, toward $110, a rise of about 10%. Additionally, the relative strength index (RSI) had been trending lower since hitting overbought conditions, with a reading above 70 in late January. But more important, it appears that downtrend has found a bottom is now starting to rise, a bullish indication.
Celgene shares are also showing signs of bottoming after hitting a multiple-year support level around $86. The stock has hit that support level on two separate occasions on decelerating volume, a sign that perhaps the sellers are reaching exhaustion. Shares could reverse and a see rise to around $110, a jump of 27%. The RSI has also been trending higher, while shares of the stock have remained flat, serving as a bullish indication.
Amgen shares have also been showing similar signs of both the ETF and Celgene with a bottoming process and the signs of a reversal. Amgen shares could rise about 7%, back to roughly $178 from its current price of $167. Like the other, the RSI has also been trending lower since peaking at overbought levels in late January. But now the RSI is also showing signs of a trend that is turning higher—another positive indicator.
Biotechs could be on the verge of a big rebound, and some of the big players in the space may also catch that same bounce, potentially lifting the entire sector higher.
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.