Biotech stocks surged higher this week after Biogen, Inc. (BIIB), the sector’s fourth-highest capitalized component, rose more than 3.5% in reaction to exceptionally strong EPS and revenue numbers. The rally could mark the start of a bullish period for the underperforming group, which bodes well for the most popular names, which have been running in place for many months.
Drug manufacturers attracted unwelcome attention in 2015 and 2016 following a series of high-profile pricing scandals that drew critical comments from Congress and president-elect. Those emotions have waned in 2017 while targeted companies have taken the firestorm in stride, laying low while they await the final form of health care and Medicare reform legislation.
Celgene, Corp. (CELG) rallied above the 2008 high at $38.69 in 2013 and entered a powerful trend advance that topped out at $141 in July 2015. It plunged one month later in the August mini flash crash, with that session’s intraday low at $92.98 marking strong support tested in February, March and June 2016. Aggressive buyers returned in a summer rally that reached $117 in August, ahead of a fourth-quarter pullback that posted a higher low in October.
The stock surged higher after the November election, but the rally stalled immediately at $127, with that level still in play more than 5-months later. It’s been holding like glue to resistance since March, completing the last stage of a small scale cup and handle pattern that could yield a breakout that tests the 2015 bull market high. The On Balance Volume (OBV) indicator supports the bullish cause, jumping to a 15-month high at the end of 2016 and hovering near that level into April.
Amgen, Inc. (AMGN) broke out above 12-year resistance in the 80s in 2012 and surged higher in a channeled uptrend that finally ran out of steam in December 2014 when the stock lifted above 170. Three failed breakout attempts gave way to a plunge into the fourth quarter, dropping the price to an 11-month low at $130 while establishing support within a broad rectangle pattern.
A test at range support in November 2016 found willing buyers, ahead of a recovery wave that reached range resistance in March 2017. The stock broke out on March 15 but ran into a buzzsaw of aggressive sellers who triggered a reversal and failed breakout, ahead of a sharp distribution wave. The decline held support at the 200-day EMA, with this week’s rally lifting off that level in a recovery wave that should rebuild sponsorship in coming months.
Vertex Pharmaceuticals, Inc. (VRTX), the seventh-highest capitalized biotech stock, reports earnings on April 27. It topped out at $99 in 2000 and entered a multiyear downtrend that ended in single digits in 2004. It took 10-years for the subsequent uptrend to reach long-term resistance, yielding a 2014 breakout that topped out near $140 in the first half of 2015. A decline into 2016 failed the breakout, yielding 14-months of basing action in the 70s.
The stock surged higher on heavy volume in March 2017, in reaction to bullish cystic fibrosis research results, and recaptured the 2016 breakout. The rally has continued into April, reaching a 15-month high that’s about 25-points below the 2015 peak. OBV is improving rapidly, but the stock has a long way to go before trading to a new high and confirming a multi-decade breakout.
The Bottom Line
Major biotech funds surged higher after strong Biogen results on Tuesday, signaling the start of a recovery wave that could gain traction in coming weeks. Big-cap biotech looks like a sweet spot in the developing uptrend, with Celgene, the strongest candidate in this elite group.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>