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.
Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled. [Healthcare ETFs: Specialized Drugs in Greater Demand]
Adds CNCB: “”[XBI] might have a shot to regain its footing,” Gordon said Friday on “Trading Nation.” “I don’t think it’s going to lead us up in 2016, but I think some of the selling will abate.”
SPDR S&P Biotech 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.