(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)

The biotechnology sector has risen in spurts all year, where the group moves higher very quickly, only to stall and consolidate. It appears the same thing is happening once again after the latest period of consolidation. Analyzing the charts and current trading patterns, the rise in the biotech sector will likely come from from the old guard, with Celgene Corp. (CELG), Biogen Inc. (BIIB) and Gilead Science Inc. (GILD) leading the charge.

When looking at the Nasdaq Biotech ETF (IBB), we can see that after breaking out in the first week of October, the ETF has stalled once again. But that could all change over the next few days based on the trends in the trading patterns. 

Nasdaq Biotech Gearing Up

 

 

 

The hourly chart above shows that the IBB has been drifting lower, but it also shows that trading volume has been drying up. This suggests that the sellers weighing on the stock could slowly be winding down.

Additionally, there has been a positive upward trend in the ETF since mid-August. The ETF will need to find support at the uptrend and could help send the biotech ETF higher, up and through resistance at $343. (See more: Why Biotech and Tech Will Push Stocks Higher In 4Q.)

Celgene Coming Back

 

 

 

Celgene shares got hit on October 10 after Morgan Stanley downgraded the stock to underweight from equal-weight, but maintained its price target at $120. Shares gapped lower, falling to approximately $138.

Since then, the stock has stabilized over the past several trading sessions and has held firm at $138. Trading patterns also suggest that Celgene shares could rise and recover the losses, filling the gap created after the downgrade. 

Biogen Continues To Rise

 

 

 

Meanwhile, Biogen stock continues to move higher after finding a bottom in May. The stock recently climbed after the company released positive data for its spinal muscular atrophy drug, Spinraza. The stock is still trying to recover from its big losses in the summer of 2015. Biogen has risen halfway through the gap and has further room to rise in order to fill the gap entirely at $355.

Gilead Breakout

 

 

 

Gilead shares have been in consolidation mode since the company reported it would buy Kite Pharma for nearly $12 billion. Gilead shares could be on the verge of breaking out as well. 

The setup in the three big biotechs, coupled with the Biotech ETF, suggest that the next breakout in the sector could happen very soon. (See also: Biotech's Breakout To Start In The Fourth Quarter.)

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.

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