The still struggling iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotechnology exchange traded fund, is facing some critical technical resistance that could determine the ETF’s near-term fate.
After rallying late in the first quarter and to start the current quarter, it looked liked as though biotechnology stocks and exchange traded funds were shaking the doldrums that have plagued the group dating back to last year.
Related: A Biotech ETF Proving Immune to Hawkish Fed Policy Changes
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.
Multiple factors, including politics, have hampered IBB and its peers. Election year posturing over drug prices represents a significant headwind for the healthcare sector and that is something biotech ETFs like IBB have already proven vulnerable to. Just go back to September 2015 and refer to Hillary Clinton’s Twitter feed.
Related: Hit The Lab With These 17 Biotech ETFs
IBB “reached an all-time high in July 2014, briefly touching the $400 level, but since then it has made a volatile series of lower highs and lower lows. Over this time, there have been two failed attempts to consolidate around key levels of horizontal support, and a third attempt is currently in progress,” according to TheStreet.com.
Even with a potentially challenging technical outlook, there are some positive fundamentals for IBB and other biotech ETFs.
[related_stories]The improved outlook for the health care industry comes as many expect continued growth in the sector, despite an ongoing so-called earnings recession in the S&P 500. While FactSet anticipates the broad S&P 500 to show an earnings decline of -9.1% for Q1 2016, the health care sector is expected to report revenue growth of 8.9%.
Related: Resisting Biotech ETFs
S&P Global Market Intelligence also mirrors this sentiment, projecting S&P 500 Q1 EPS to decline 7.5% year-over-year but anticipating 2.9% earnings growth for the health care sector.
“The previous attempts to hold support levels can be seen on the long-term daily chart of the index, below, with the 2014 and 2015 highs defining a major downtrend line. The latest consolidation currently underway is centered around the $270 level, and the integrity of this level could determine whether the primary downtrend remains intact, or the index begins a transitional shift in its long-term direction,” adds TheStreet.com.
For more news on Biotech ETFs, visit our Biotech category.
iShares Nasdaq Biotechnology ETF
