(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Biotechnology stocks were among the best-performing sectors in 2017 until mid-October. At that point, the group took a hit, with the Nasdaq Biotechnology ETF (IBB) falling by 10 percent from October 17 until November 14.
As Investopedia previously noted, the Biotech ETF was able to hit and hold a technical support level at $303. The ETF maintained that support level, quickly bouncing off. The ETF also formed a reverse head and shoulders pattern on the 15-minute intraday chart. This is a reversal pattern, which is confirming the turnaround.
The Nasdaq Biotechnology ETF has a lot of work to do re-gain the highs around $343, which is a rise of 10 percent from its current price of $313, but it is possible to clear those levels again by year-end. The first test for the ETF comes at a resistance level of $322. See also: Why Biotech Stocks Are Nearing a Rebound.)
Celgene shares have now broken out as well, rising above a technical resistance level at $102.50. The stock is on track to refill the gap created after the company issued disappointing forward guidance. But trading volume has been steadily declining, which is an indication that the initial selling pressure has decreased.
With the breakout occurring, Celgene shares could see additional buyers come in, helping to boost the stock higher toward resistance at $119. That's an increase of about 14 percent from the current stock price of around $104.50.
Biogen shares have been consolidating for some time, and have been able to hold technical support at $306. The trend in Biogen stock is still positive, while trading volume has also been declining, suggesting the selling pressure is abating.
The relative strength index is also reasonably low, around 42. A breakout would occur should the stock rise above $319.
Amgen shares have found support along its long-term uptrend, indicating the stock could be bottoming as well. Like Celgene and Biogen, volume has been dipping, which is a bullish sign.
Additionally, the relative strength index has been trending higher versus a stock price that has been consolidating – another positive signal. Shares of Amgen could rise by 10 percent before hitting resistance at $185.
If the biotech sector starts moving again, it could provide a meaningful boost to the overall market going into the end of 2017.
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.