The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) lost another 1.1% yesterday. On its own, that does not sound like much, but the largest biotech exchange traded fund has lost ground in four of the past five sessions, a span in which IBB is off almost 4.7%.
Some major biotech ETFs have been worse than IBB over that period, stoking speculation that a group of stocks and ETFs that have been major contributors to the upside in U.S. stocks for several years is in danger of wilting.
“Aside from the steep slope of the trend we can also see a bearish condition in momentum. While prices made higher highs, momentum indicators such as the relative strength index (RSI) made a lower high in a condition called a bearish divergence. It means that the power behind the rally is waning and a breakdown is now a good possibility,” reports Michael Kahn for Barron’s.
“According to data from CNBC, 81 percent of stocks in the IBB with a market cap of more than $500 million are down more than 10 percent from 52-week highs, technically placing them in correction territory,” reports Stephanie Yang for CNBC.
The $9.49 billion IBB is home to 145 stocks, but the fund’s top 10 holdings combine for nearly 60% of its weight. IBB’s top four holdings combine for nearly a third of the ETF’s weight and in the case of IBB, which is a cap-weighted, downturns for the largest biotech stocks can mean trouble for the fund. IBB’s top four holdings are Celgene (NasdaqGS: CELG), Amgen (NasdaqGS: AMGN), Gilead Sciences (NasdaqGS: GILD) and Regeneron Pharmaceuticals (NasdaqGS: REGN).
Biotech fundamentals, broadly speaking are sound, but plenty of critics point to the industry’s richer-than-average multiples, which could make the likes of IBB vulnerable to more downside. Gven the lofty year-to-year returns, some are growing cautious over the biotech sector. Some argue that the high valuations in the biotech sector have been supported by a low interest rate environment. [Don’t Mess With the Leveraged Biotech Bull]
“This is not a definitive breakdown just yet because it is still small in the context of a multi-month advance. However, when a leader stumbles we must take notice. Has everyone who thought about buying biotech already done so leaving demand weak? Or is it simply that no sector leads forever and it is just time for it to relinquish the leadership mantle to some other group?,” adds Kahn.
iShares Nasdaq Biotechnology ETF
