Biotech Sector (XBI)
XBI is the ETF that tracks the S&P Biotechnology Select Index. This ETF is equal weighted and distributed amongst small, medium and large cap companies. It’s one that I use as a proxy for the biotech industry.
Relatively speaking, this sector performed poorly over the last 3 weeks.
That being said, any attempt to buy biotech right now would be a countertrend move, which comes with risks. Stocks in motion tend to stay in motion; however, there is evidence that we could be approaching a bottom, which could provide an opportunity.
Note how XBI is finding support at the $139-$141 price region. This is a heavy confluence of important prices. Furthermore, the RSI, CCI, and Accumulation/Distribution lines are all diverging, suggesting that the selling pressure is fading.
The Accumulation/Distribution line implies that smart money is beginning to buy at these levels. This is further backed by the volume patterns declining into the correction, implying that the sellers are drying up. Also, note the two large green volume spikes. These are signs you look for when looking for a potential bottom.
Two Biotech Stocks we like
Please note, we have looked at these stocks fundamentally but will lean heavier on technicals for Biotech as the space is complicated and requires domain knowledge to trade purely on fundamentals.
Sarepta Therapeutics (SRPT)
SRPT is setting up for a nice breakout above the $180-$185 region. The targets on this move will be the $425-$570 region if confirmed. Also, there are several levels in play which need to be monitored.
The $167-$176 region signals a breakout for the large base formed since it topped in June of 2018. Also, note the ascending inverse head and shoulder pattern that is also at play (in green). Price failed to breakout from the neckline around $180-$182. Since then, we are seeing a retest of the $167 region.
I’d look for a buy at the lower trend channel on any weakness, which is implying support between $128 – $135, depending on how fast it gets tested on any weakness. If we do not see this caliber of correction, we will be looking for a breakout buy on this position.
Sangamo Therapeutics (SGMO)
SGMO is setting for a multi-year breakout. The chart appears to be tracking a leading diagonal pattern, which is overlapping, with sharp moves, yet trending up since 2003.
I believe that we are in the final 5th wave of this leading diagonal pattern, which can take us well into 2021, if confirmed and held. We will be playing the $19.25 breakout on this move.