Biotech White Hot. Too Much So?

The IBB has stormed higher by nearly 19% the last 3 weeks as it is one of the best performing ETFs in 2019 thus far. As powerful as that move has been it has still not traded above the prior 3 weeks drop of 17.5% during the weeks ending between 12/7-21/18. The fund is now smack up against resistance at a slightly downward sloping 200 day SMA for the third time in as many months. On 10/16 it actually did break above the long term secular line creating a bull trap, as it retreated back underneath it just three sessions later. If and when it catapults back above the line will bulls fell less inclined to join the party? For that reason it may have fuel to continue higher from a contrarian perspective alone.

Ratio Chart Does Not Do It Justice:

The chart below would have one thinking that the S&P 500 was still mired in a nasty downtrend. Truth be told the important benchmark just recorded its best 3 week return since the lows made in February 2016. It is bumping up right into the very round 2600 number, which it seems like even the martians are talking about in another universe. A move above can potentially catch even more market participants on the wrong side. Getting back to biotech, the CELG takeout played a role (BMY is even acting a bit better as it closes in on an upside gap fill from the announcement). AMGN sits just 5% off most recent all time highs. This overall healthcare action is happening in the face of a new House administration looking to take on drug prices too.

Examples:

Biotech names could be very volatile as we all know, but it does pay to remember what stocks did well before a market selloff knocks the group down. Big gains are made for a reason, and best of breed names may not lead as vigorously as they did prior, but they should warrant your respect and be included in any watchlist. A good example of this is the chart of NVCR below, and precisely how it was profiled in out Healthcare Report from 1/7. This name produced a 20 of 25 week winning streak the weeks ending 4/13-9/28/18 (beginning at very round 20 number), and 3 of the down weeks CLOSED in the upper half of the weekly range. It has registered a very powerful move, and the right side of the cup base is looking healthy, pun intended.

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