The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech ETF by assets, and other biotech ETFs have proven to be predictable targets for bearish chatter and selling pressure during the recent market downturn that has seen investors forsake momentum sectors and stocks.
Given 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. However, with the Federal Reserve eyeing an interest rate hike, biotechs may be more vulnerable ahead.
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]
Taking emotion out of the equation and looking at a chart of IBB reveals what could prove to be a promising technical outlook. According to Captain John Charts, here are some of the encouraging signs for IBB:
- Momentum made a new low when looking at the RSI indicator, while price did not. This is known as a bullish “Hidden Divergence.”
- Price managed to climb over several trend-lines that have acted as support and resistance in the past.
- A long bullish candle “Hammer” appeared after more than exceeding the Head & Shoulder downside objective.
- A bullish candle appeared today bringing this ETF back above the 200 day moving average.
While some of this year’s best biotech ETFs are smaller, new breed, niche funds, the old guard of biotech ETFs are well represented among this year’s best funds. That includes IBB, which tracks the Nasdaq Biotech Index, and the SPDR S&P Biotech ETF (NYSEArca: XBI), the third-largest biotech ETF by assets. [Biotech ETFs for the Long Term]
“In terms of prescription drug expenditures, spending is projected to have grown 12.6 percent in 2014 to $305.1 billion. Driving growth were new specialty drugs and increased prescription drug use among people who were newly insured. Prescription drug spending growth is projected to average 6.3% annual growth from 2015 through 2024. Taken together, as the biotechnology sector continues its innovation and continuous supply of medications to treat and cure many different diseases coupled with the growth in overall medical spending may present an investment opportunity especially given the recent market volatility,” according to a Seeking Alpha post.
Shares Nasdaq Biotechnology ETF
Chart Courtesy: Captain John Charts
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.