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

There is increasing evidence that the biotech sector will continue its current upswing using the iShares Nasdaq Biotechnology ETF (IBB) as a proxy. The ETF is up by nearly 25 percent so far in 2017, but since September 1 the group has stalled, with the IBB down 1 percent, while the S&P 500 has risen by 1 percent. But the technicals continue to improve, as Investopedia noted last week, and the group still looks healthy and appears ready to move higher. (See more: Gilead, Celgene and Biogen Are Ready To Rise.)

Using the three companies in the ETF, we can see why the ETF has stalled. Amgen Inc. (AMGN), Biogen Inc. (BIIB), and Gilead Sciences (GILD) make up about 25 percent of the ETF weighting. As these stock go, the rest of the group is likely to follow The chart below shows that only Amgen has advanced since the start of September, while Gilead and Biogen have underperformed. 

 

IBB Chart

IBB data by YCharts

 

ETF Has Consolidated

The Nasdaq Biotech ETF continues to have positive momentum behind it and seems as though the price has consolidated nicely over the past few weeks. As noted last week, the pattern in the chart is still bullish, and suggests a move higher is around the corner.

The options market is pricing in roughly a 6 percent move in the ETF based on a long straddle with the $330 strike price that is set to expire on November 17. The straddle suggests an upside range of about $350 and a downside range of about $310. The chart demonstrates strong support at the $330 region, with positive momentum making $350 a potential level for the ETF by November.

 

 

Gilead Rebound

Gilead shares have had a significant move – up 30 percent – since bottoming in mid-June. The stock remains in a positive uptrend and appears to be in a period of consolidation after breaking higher on the announcement that it plans to acquire Kite Pharma (KITE) for about $12 billion.

Volume in the stock has stabilized over the past few weeks after spiking following the acquisition news, while the relative strength index remains in neutral territory. The overall trend is still bullish, and suggests there is likely further upside ahead, with the chart suggesting the stock could move toward $92. 

 

 

Amgen at All-Time Highs

Amgen shares are trading in all-time high territory after have recently broken out to the upside. Options pricing suggests the stock could see a 5.5 percent move from now until expiration on November 17, using the $190 strike price long straddles. That would indicate a breakeven price in the stock of about $200 to upside or $180 to the downside. The technical chart shows how the stock just broke through an upper resistance level, which is a bullish directional indication. 

 

 

Biogen Surge

Shares of Biogen have been steadily moving higher since breaking out at the end of August, when it crossed over the $300 level. Options are pricing in that Biogen shares could run by nearly 9 percent based on the long straddle using the $315 strike price set to expire on November 17. The straddle suggests the price of the stock could rise toward $342 or fall toward $288. Keep in mind that the $300 level will offer strong support should the stock price move lower. It seems the momentum behind the stock favors a move upward. 

 

 

Biotech continues to look strong and the market seems to be gearing up for another push higher before year end. 

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.

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.