Recently, biotechnology stocks and related exchange traded funds gave back all of their gains this year and then some as political posturing, among other factors, punished the once hot sector.
Bespoke Investment Group pointed out that the recent biotech pullback was not the first time the sector faced a bear market, Bloomberg reports. Looking back at data from 1992 until now, Bespoke found that bearish price pressure lingered, with an average decline greater than 20%, which suggests that the sector may fall even lower.
“Of the 18 prior bear markets, the average length was about three months (92 days) over which time the index dropped an average of 29.3% (median: -26.7%),” according to Bespoke. “Based on these prior declines, if the current bear market follows the average path, it would imply further downside of about 10% over the course of the next three weeks.”
“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on,” Democratic presidential candidate Hillary Clinton tweeted earlier this month, referring to a recent New York Times report that outlined price hikes on specialized drugs.
The SPDR S&P Biotech ETF (NYSEArca: XBI), which tracks an equal-weight index of biotechnology companies and focuses on smaller biotech names, has been one of the worst affected ETFs following Clinton’s comments. XBI, the third-largest biotech ETF, has tumbled 18.4% over the past month and the selling pressure might not soon let up on XBI and rival biotech funds.
“Taking a look at the five-year weekly chart of the SPDR S&P Biotech Index ETF, you cans see that it has been trading within a clearly defined uptrend since late 2011. Recent weakness has pushed the price of the fund below the trendline, which based on technical analysis, is a significant sell signal. The recent bearish crossover of the MACD and the zero line will likely be used as confirmation of the downward momentum and many bearish traders will likely protect their positions by placing a stop-loss order above the trendline or short-term high near $80 depending on risk tolerance,” according to Investopedia.
Traders looking to profit from ongoing declines in XBI can consider the Direxion Daily S&P Biotech Bear Shares (NYSEArca: LABD), which attempts to deliver three times the daily inverse performance of XBI’s index.
SPDR S&P Biotech ETF
