(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
The one-month downdraft in the biotech sector may at last be coming to an end. The Nasdaq Biotech ETF (IBB) has fallen by nearly 9 percent, while some large-cap biotechnology names have fallen by even more significant amounts.
Celgene Corp. (CELG) has declined by almost 27 percent, while Biogen Inc. (BIIB) and Amgen Inc. (AMGN) have also dropped around 9 percent. By comparison, the S&P 500 Index has been able to gain slightly.
But at long last, the Nasdaq Biotech ETF is at a critical technical support level, trading at about $305. The last time the ETF traded at these levels was back in August.
The current level of support is critical, and one that is notable and should be very tough to break. That is because the ETF had a very tough time rising above it back in late-February and early-March, when it twice failed to rise above $303. It wasn't until the middle of June that the ETF was able to finally climb above $303.
Even more critical is that the ETF retested the $303 level in August two times, and was able to hold and bounce higher off the support level. (See also: Here Is Why A Biotech Bounce Is Coming.)
The chart of the biotech ETF also shows that trading volume has been steadily declining – a sign that perhaps selling pressure is abating – while the ETF's relative strength index has an oversold reading below 30.
With the ETF was put to the test on many occasions at the $303 level, it seems that a move higher from current levels is more likely than a further breakdown. When exploring some of the critical components of the biotechnology ETF, one can see similar signs.
Celgene remains in oversold territory, with a relative strength index reading of less than 30. Additionally, trading volume has been declining, which could be a sign the selling pressure is beginning to decrease.
The stock has done an excellent job of consolidating around the $100 to $102 level despite the continued downward movement of the sector.
Biogen shares, like Celgene, have been able to stabilize around $310 despite the weakness in the biotech group. Like Celgene, volume for Biogen has started waning, which, again, is an indication that selling pressure may be abating.
Amgen is also seeing declining volume and an oversold relative strength indicator, and is now hitting a critical long-term uptrend line.
Positive trends are developing with some significant biotech names, while the ETF is approaching an extreme support level. A rise from here seems likely to be the case. (See also: Top 5 Biotech Stocks for 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.