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

The stock market is always sending little clues to investors, one just needs to be looking for them. The biotech sector performed exceptionally well in the face of extreme levels of volatility demonstrated on December 1. The Nasdaq Biotech ETF (IBB) was up by nearly 50 bps on the day, easily outpacing the S&P 500 (SPY) loss on the day of 20 bps. (For more, see also: Stock Prices Plunge On Emotion, Not Reality.)

The big caps like Amgen Inc. (AMGN) and Regeneron Pharmaceuticals Inc. (REGN) pieced together substantial gains. Regeneron shares climbed by nearly 3.5%, while Amgen rose by almost 1%. The overall Biotech ETF was back in positive territory by early afternoon, while the broader S&P 500 was still struggling.  

Strong Sector

Stocks and sectors that exhibit strength in weak markets are clues that future gains lie ahead. Additionally, Biotech as a whole is a very aggressive and risky part of the market, where volatility can often be high. In a time of high volatility, which was the case on December 1, the fact that the group recovered so quickly and investors were looking to take on risk is a huge positive. (For more, see also: Why Biotech Stocks Are Nearing a Rebound.)

IBB Price Chart

IBB Price data by YCharts

The Biotech ETF was able to successfully test and rebound off of key support, a recent uptrend that has been formed since the ETF bottomed back on November 14. This is a positive sign that should help the group continue to rise. Should the ETF be able to mount a rise above $107, it should lead to a further advance back to the highs around $113—about 7%. 

 

 

 

Amgen Rally

Amgen's stock has also been trending higher since November 20, and Friday's high level of volatility did little to interrupt the shares current updraft.  Amgen looks headed back towards $185, a rise of nearly 5%. A move higher towards $192 seems possible should the stock keep the upward momentum, which is a move of about 9%. 

 

 

 

Regeneron Bottom?

Regeneron saw a surge in volume while the stock was up sharply. At this point, it is hard to say that the stock has broken out or bottomed because it has been in a horrible downdraft since June, but it doesn't mean shares aren't due for a bounce. A bounce from the current level of $373 could be enough to see the stock rise by roughly 8.5% to $405. From there, one would want to see that momentum continue. If that surge continues, a rise on towards $430 seems plausible. 

 

 

 

Watching the clues the market sends can be very powerful, and it can indicate the sectors and the stocks that are likely to continue to rise or fall in the future. Periods of extreme market volatility can make these signals shockingly clear. 

 

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.

 

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.