The SPDR S&P Biotech ETF (NYSEArca: XBI), the third-largest biotechnology exchange traded fund by assets, is off 31% over the past 90 days and those declines have some traders betting biotechnology stocks and ETFs could face more near-term volatility.
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.
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]
“Looking at the chart of XBI, Todd Gordon of TradingAnalysis.com said the ETF has held above an important support level at $45, which should set it up for more short-term gains,” reports Stephanie Yang for CNBC.
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.