The iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB), the largest biotech ETF by assets, is trying to shake out of a fourth-quarter slump. IBB is sporting a fourth-quarter loss of about 7%, a slide that means the benchmark biotech ETF is now trailing the S&P 500 on a year-to-date basis.
Technical indicators suggest IBB could face more near-term downside.
“On Wednesday, the ETF broke below its 200-day moving average, which has proven solid support for the IBB for much of 2017. This is a red flag for the stocks into year-end and into 2018,” reports CNBC. “The IBB has rallied nearly 16 percent this year but began pulling back in October. This raised concern that it could see a decline akin to the one in 2015 amid political uncertainty around drug pricing.”
Still, there are supporters of the biotech space. Healthcare stocks are also showing attractive valuations relative to other defensive sectors, which are richly valued. Biotechnology historically trades at multiples that are elevated relative to broader benchmarks, but after last year’s of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
Biotech “trades more than 25% below its 15-year average based on historical and forward price-to-earnings ratios. Compared with the broader market, biotech stocks are also trading at a discount and far below their historical average,” according to State Street.
However, IBB’s technical outlook is precarious. With a decent gain Thursday, the ETF was able to reclaim its 200-day moving average, but IBB remains mired below its 50-day line. Plus, there are indications that a head-and-shoulders pattern is at play.
“Two more key levels Miller Tabak equity strategist Matt Maley is watching are 105.5, which was the IBB’s high in early November and early December, and 101.5, which is the low touched in August and November. A break below 101.5 would be quite bearish for the IBB,” according to CNBC.
The $9.6 billion IBB tracks the Nasdaq Biotechnology Index and holds nearly 160 stocks. Biogen Inc. (NASDAQ: BIIB), Amgen Inc, (NASDAQ: AMGN), Gilead Sciences Corp. (NASDAQ: GILD) and Celegene Inc. (NASDAQ: CELG) combine for over 31% of IBB’s weight.
For more information on the biotech sector, visit our biotechnology category.