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Resisting the Temptation of Biotech ETFs

After rallying late in the first quarter and to start the current quarter, it looked liked as though biotechnology stocks and exchange traded funds were shaking the doldrums that have plagued the group dating back to last year.

It appears as though investors will have to wait some more for ETFs such as the iShares Nasdaq Biotechnology ETF (IBB) to legitimately enter new bull markets. In recent weeks, IBB, the largest biotech ETF, has been scuffling. The same can be said of rivals, such as the SPDR S&P Biotech ETF (XBI) and the First Trust NYSE Arca Biotechnology Index Fund (FBT) .

Some traders and technical analysts are concerned about IBB’s chart.

“The IBB is $150 per share off its highs. Technically, it now needs a bounce, or the ETF risks inviting heavier selling,” according to InvestorPlace. “Losing the $240 per share level could put the $200 in jeopardy. The IBB lost several support zones already and is currently hovering just above another.”

Related: A Biotech ETF Proving Immune to Hawkish Fed Policy Changes

There is an alternative point view from the fundamental level. The time to buy, regardless of sector, is usually when a particular group falls out of favor, not when it has been bid higher by scores of investors. Some investors view that as the case with the broader healthcare group and biotechnology in particular.

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Biotechnology ETFs should also prove immune to hawkish changes in Fed policy. A recent study by Deutsche Bank indicates major biotech indexes have negative correlations to changes in 20-year U.S. government bonds. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.

“Fundamentally, biotech stocks have value, so a major selloff should eventually bring out buyers. But for now, the stream of buyouts and mergers is drying out. Trader willingness to buy every IBB dip is consequently waning. Eventually, buyers will step in as prices approach intrinsic values,” adds InvestorPlace.

Related: Hit The Lab With These 17 Biotech ETFs

Aggressive traders willing to bet on more downside for biotech ETFs can consider the following leveraged funds: The Direxion Daily S&P Biotech Bear Shares (LABD) , ProShares UltraPro Short NASDAQ Biotechnology (ZBIO) and the ProShares Ultrashort Nasdaq Biotechnology (BIS) . BIS and ZBIO track the same index as IBB.

For more news on Biotech ETFs, visit our Biotech category .

iShares Nasdaq Biotechnology ETF