In a year of volatility and struggles for the biotechnology group and exchange traded funds such as the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), which tracks the Nasdaq Biotechnology Index, investors are undoubtedly tired of hearing about biotech ETFs being at crucial technical junctures, but that looks to be the case at the moment.
However, a potential catalyst for biotech stocks and ETFs looms as traders that previously heavily shorted some of these names move to take profits and cover these winning bearish bets.
According to the NASDAQ, on the settlement of September 30, 2015, IBB short interest surged 23.82% to 11.54 million shares, since Hillary Clinton sent out a tweet on September 21, 2015 saying, “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. -H “.
The technical challenges and election year posturing facing biotech ETFs belies what some believe is still a bullish long-term investment thesis. 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_stories]
“In the coming weeks, all of the top holdings of the IBB ETF are scheduled to report earnings, which is to say that for the near to intermediate term this could be a make-or-break period for this space in terms of price action,” according to InvestorPlace.
Related: Resisting Biotech ETFs
As MarketWatch points out, it is not just Clinton and Trump that are weighing on biotechnology and pharmaceuticals stocks. Several states have ballot measures to be voted on in November that seek to cap drug prices while some governors and attorneys general are pushing drug companies to explain big price increases.
“As we will see on the ensuing two charts, the IBB is holding on to crucial technical support by a thread and is just one stumble away from another meaningful leg lower,” adds InvestorPlace.
iShares Nasdaq Biotechnology ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.