3 Bear Plays for the Bust in Biotech Stocks

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It appears the dreaded biotech stock bust is upon us.

biotech stocks
Source: ©iStock.com/Chepko

The popular iShares Nasdaq Biotechnology ETF (IBB) has now fallen 27% from its heights, placing it deep into bear market territory. Biotech lovers might be holding out for a glorious resurrection, but I’m not so hopeful.

Yes, biotech stocks have experienced more than a few downturns during their glorious ascension, but none have been as severe and done as much technical damage as the current cascade.

Plus, the broader equities market is the weakest its been in years. If this market correction goes the distance, growing into a full-fledged bear market, it will be biotech stocks that suffer disproportionately. High-beta, small-cap stocks always tend to drop the most amid the sell-fest.

Here are three ailing biotech stocks worth buying puts on.

Bear Plays on Biotech Stocks: Celgene (CELG)

biotech stocks Celgene (CELG)
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Source: OptionsAnalytix

As one of the top holdings in the IBB ETF, Celgene (CELG) has been unable to escape the bears’ wrath. What’s perhaps the most insulting is that CELG stock was one of the best-looking biotech stocks before the recent market turmoil began.

However, the recent liquidation has taken Celgene below all its major moving averages and support levels aplenty.

If CELG stock doesn’t rebound quickly, it’s going to have a mountain of overhead supply to work through which should stymie future recovery attempts. In the short run, CELG stock — along with the entire biotech sector — has become tremendously oversold. Resist the temptation to chase bear plays into the hole here.

However, if CELG bounces in the coming days, consider it a prime candidate for long puts. The Jan $110 put should do the trick.

Bear Plays on Biotech Stocks: Amgen (AMGN)

Bear Plays on Biotech Stocks: Amgen (AMGN)
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Source: OptionsAnalytix

The trend reversal in Amgen (AMGN) is a bit further along than its predecessor. The 200-day moving average was lost during the beginning of Amgen’s swan dive, and the stock remains well below prior support levels.

Even if AMGN stock were to rebound rapidly here, the $150 zone is going to provide some serious resistance.

Given the lengthy amount of time that AMGN stock spent wandering between the $155 to $165 zone over the year there are countless traders who accumulated shares and are now underwater. The lion’s share of these bag holders will be more than happy to sell their holdings should AMGN stock venture anywhere near $150 in the coming weeks.

I’m a seller of any and all rallies in AMGN for the time being. Consider doing the same. Snatch up the Jan $145 put on any kind of rebound towards $150.

Bear Plays on Biotech Stocks: Gilead Sciences (GILD)

Bear Plays on Biotech Stocks: Gilead Sciences (GILD)
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Source: OptionsAnalytix

Gilead Sciences (GILD) rounds out our list of victims. Its price chart is quite similar to its fellow biotech brethren. GILD stock now finds itself submerged below all major moving averages. It’s also on the verge of breaking a weekly trend line (not shown) that has defined its uptrend for the past three years.

In the short run, the bloodbath in biotech stocks may have run its course. The volume in GILD stock, as well as CELG and AMGN, was so excessive during Monday’s free fall that it may well have signaled short-term capitulation. Unfortunately, such a signal may only be good for a mild rebound before the selling begins again in earnest.

GILD stock will fall victim to overhead resistance like the rest of its buddies. Buy the Jan $100 put whenever the coming biotech bounce peters out.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/biotech-stocks-gild-amgn-celg/.

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