Biotechnology stocks and exchange traded funds are struggling to start 2016 with some well-known biotech ETFs residing near 52-week lows and well off the highs set in mid-2015. However, the group’s recent struggles could be giving way to buying opportunities.
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 among the more beaten up biotech exchange traded funds, but some technicians believe the charts on XBI indicate upside for the ETF could be ahead.
Although XBI is an equal-weight ETF, there have been occasions when FDA and mergers and acquisitions news from just one of the ETF’s holdings has led to significant intraday pops for XBI. [Intercept Lifts ETF]
“If XBI is heading downward in a major impulsive (i)-(ii)-(iii)-(iv)-(v) move from its July 2015 high, as the internal structures of the swings indicate, then we would expect to see a fourth-wave correction appear soon. There are several areas to watch for support to develop, and that suggests that a useful strategy for seeking a long trade might be to scale into a position in small increments – either buying at the levels or (more safely) buying small pullbacks that create higher lows after a support level has been tested,” according to See It Market.
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.