Biotechnology investors are no strangers to volatility, and Tuesday's price action was no exception. Followers of gene therapy companies watched one of the most popular names in the industry lose approximately one-third of its value due to patient safety concerns. In this article, we take a look at the charts of several biotech-related assets and determine how traders are likely to position themselves over the weeks or months to come. (For related reading, check out: The Ups and Downs of Biotechnology.)
As alluded to above, shares of Spark Therapeutics dropped sharply in Tuesday's trading session due to heightened patient safety concerns surrounding a hemophilia gene therapy trial. Taking a look at the chart below, the price of the stock recently broke below a key ascending trendline and has been under selling pressure ever since. Tuesday's massive sell-off has now sent the price toward the key resistance near $50, as shown by the horizontal trendline. This will undoubtedly remain a biotech company of interest for many active traders because a break below the dotted trendline could trigger a continued move toward the December 2017 lows or perhaps beyond. Technically, it will be interesting to see if the nearby support level is able to hold and whether this presents a buying opportunity for risk-taking investors. (See also: 8 Stocks for the Next Gene Revolution.)
As the old saying goes, one man's loss is another man's gain, which is evident per the recent price action of BioMarin Pharmaceutical. More specifically, Spark's recent results seem to be lagging a rival treatment from BioMarin Pharmaceutical. As you can see from the chart below, Tuesday's gain sent the price of BioMarin shares above the resistance of a nearby swing high, which suggests that the bulls are in control and that the breakout could be a catalyst to a significant move higher. Based on the pattern, active traders will likely set their short-term price targets near $115, which is equal to the entry price plus the height of the pattern. (For more, see: 9 Stocks Poised for Healthy Long-Term Gains.)
While gene therapy represents a small portion of the overall biotech sector, active traders will likely want to take note of the chart of the iShares Nasdaq Biotechnology ETF. The weekly chart clearly shows an established uptrend, and the recent push toward the resistance suggests that a break higher could be in the cards. Buy-stop orders will likely be set directly above the dotted trendline, which could be the catalyst toward the 2016 high near $130. (For further reading, check out: 3 Hot Biotech Stocks Facing Sharp Declines.)
The Bottom Line
Biotech investors have been the beneficiaries of a major uptrend over the past several years, but as the chart of Spark Therapeutics shows, it comes with an adequate share of risk. Active traders will likely continue to trade based on the defined patterns, and the trendlines shown in the charts above will likely be the ones used for setting the placement of orders moving forward. (For more on this topic, check out: Active Traders Turn Bullish on Biotech.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.