The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, is up more than 10% year-to-date and although the behemoth biotech fund has backed off its recent highs, some traders believe more upside is coming for the widely followed sector.
Speculation of more upside for biotechnology stocks and ETFs comes against a potentially challenging political backdrop. Earlier this month, President Trump vowed “Medicine prices will be coming way down — way, way, way down — and that’s going to happen fast.”
Trump added that pharmaceuticals prices in the U.S. are “outrageous.” Earlier this year, Trump said the pharmaceuticals companies “are getting away with murder” when it comes to pricing on their products.
Looking at IBB’s technicals, “you can see that the 50-day moving average (blue line) has recently crossed above the 200-day moving average (red line). This extremely common buy signal is known to active traders as the golden cross and is generally used to mark the beginning of a major uptrend,” according to Investopedia.
IBB, which holds nearly 190 stocks and is a cap-weighted ETF, has a price-to-earnings ratio of just over 21 and a price-to-book ratio of 4.92. The ETF’s three-year standard deviation is just over 25 percent.
Market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector. The White House is also looking to help the Food and Drug Administration (FDA) expedite new drug approvals, which could serve as a major catalyst for the biotechnology space.
ETF traders who are betting big on the biotechnology sector rebound have also utilized leveraged long options including the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index.
Other options include the ProShares UltraPro Nasdaq Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark.
For more information on the biotech sector, visit our biotechnology category.