Breakout

3 picks for bent but not broken biotech

Jeff Macke
Breakout

Given up for dead just weeks ago the biotech sector is suddenly back with a vengeance. Seemingly everyone’s favorite momentum darlings, or at the very least a group to rival social media for those who aren’t afraid of science, the iShares Biotechnology ETF (IBB) suffered a mini-bear market from February to April but never decisively collapsed.

With the ETF bouncing and the sector as a whole seemingly making a recovery, the billion dollar question for traders is whether this is a chance to make a graceful exit from long positions or the beginning of a whole new bull market for biotechs.

In the attached clip Oppenheimer’s Ari Wald says the sector has held its uptrend. “There are three things I like about (the sector): It’s oversold. It’s stabilizing on support and it’s still in an uptrend.”

From a technical perspective that makes the trade relatively simple. The stocks can be bought where they are with a stop loss set at or below prior support levels. On the IBB in particular Wald notes that the decline held the 200-day moving average. As you can see in the chart below the 200-day for the IBB is currently about $223. As long as it remains above that mark Wald will consider the upward trend to be in place.

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Wald has three favorites within the group:

Biogen Idec (BIIB):

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Alexion Pharmaceuticals (ALXN):

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United Therapeutics (UTHR):

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