Investors in healthcare stocks and exchange traded funds have likely had their fill of hearing about the sector’s first-quarter doldrums, most of which were caused by a continuing biotechnology slump. Those investors should take heart because bullish technical chatter regarding some marquee biotech ETFs has recently been intensifying.
For example, the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech exchange traded fund by assets, extended a bear market in the first quarter, but that has only amplified calls for a second-quarter biotech rebound.
The time to buy, regardless of sector, is usually when a particular group falls out of favor, not when it has been bid higher by scores of investors. Some investors view that as the case with the broader healthcare group and biotechnology in particular.
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. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.[related_stories]
“On a purely technical basis, seeing the iShares Nasdaq Biotechnology ETF close above $255.50 and the SPDR S&P Biotech ETF close above $49.60 would represent a short-term breakout above the current range. That would be a bullish trigger, although it’s worth noting that both ETFs are at risk of getting overbought on that kind of move…From a bull’s perspective, the best case scenario is probably a strong close near the highs today and a big volume day tomorrow,” according to a note from Cornerstone Macro posted by Ben Levisohn of Barron’s.
Recent options market data also suggest traders are betting on a second-quarter biotech bounce.
IBB “traded 2X daily call volume with notable trades including a buyer of 4,500 May $280 calls at $4.70 to $4.72 (a $2M+ trade) and a late afternoon buyer of 2,000 April 8th (W) $265 calls at $3.60. The IV Skew in the IBB is steeply sloped, so OTM calls are cheap as IV has also pulled back around 30% since peaking in early February,” according to See It Market.
iShares Nasdaq Biotechnology ETF