(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

The biotech sector has risen sharply over the past few days, using the iShares Nasdaq Biotechnology ETF (IBB) as a measure. The upswing is a sign that perhaps the risk-on mentality is back in the final quarter of 2017. The rise on October 2 was helped by a surge in shares of Seattle Genetics Inc. (SGEN ). A technical analysis of the Nasdaq Biotech ETF suggests the group could climb even further. 

Should the sector continue to gain momentum, it would indicate that more money is moving into biotechnology because investors are willing to shoulder more risk in their search for returns at the start of the fourth quarter.

Sector Clears Resistance at $332

A sharp spike occurred in the IBB ETF, as seen in the chart below, when the ETF cleared a key resistance around $332. As noted in a prior Investopedia article on September 29, the ETF could have more upside from current levels. 

The chart below shows that after a month-long period of consolidation the ETF has now begun to rise sharply. The increase occurred on September 29 and followed through on the morning of October 2. The next potential trouble area the ETF could face comes around the $343 level. 




The move higher in biotech is not only happening among the names that make up the Nasdaq Biotechnology ETF, but has been confirmed in the more equally weighted SPDR Biotech ETF (XBI). The chart below shows that the ETF has also surged over the past couple days. In fact, it is closing in on all-time high territory not seen since July 2015. 




Shares of Seattle Genetics are helping to pull the group up, and it appears it can head higher from current levels. The chart below shows a technical pattern known as a reverse head and shoulders. This pattern is typically seen as a reversal pattern, meaning shares could rise from the current level. The chart suggests Seattle Genetics could rise to nearly $68 a share. 




With the biotechnology sector starting to come back to life, it can be viewed as a positive for the overall health of the equity market. The sector has been one of the groups pulling the S&P 500 higher in 2017. (See also: Why Biotech and Tech Will Push Stocks Higher In 4Q.)

After a month of consolidating in September, the group looks poised to climb. This suggests that investors and traders are in search for risky assets and are feeling comfortable with the current market environment. A biotech sector that is rising means the risk trade is on, and that is good for climbing equity prices.


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 holdingsInformation 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.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.