Biotech on Sale, Get Ready to Buy

Advertisement

Stocks opened the week with on-balance gains, but biotechnology stocks fell sharply with iShares NASDAQ Biotechnology Index (ETF) (IBB) plummeting 4.5% on the day. This made health care the only sector of the S&P 500 to show a loss, down 1.4%.

Presidential candidate Hillary Clinton was blamed for the sell-off following a tweet that she is ready to propose a plan that would target “price gouging” by specialty drugmakers.

Despite Monday’s biotech losses, IBB is still up 12.2% year to date.

Financial and technology stocks led an advance in the Dow Jones Industrial Average, which rose 0.8%. Blue chips Apple Inc. (AAPL) and Microsoft Corporation (MSFT) both gained roughly 1.5%

Energy stocks advanced 0.6% impacted by a 4.5% rise in crude oil, which closed at $46.68 a barrel.

Gold was down 0.5% at $1,133.10 an ounce, resulting from a stronger U.S. dollar. The greenback rose 1% against the euro, which fell to $1.119, the lowest close for the currency in two weeks.

At Monday’s close, the Dow Jones Industrial Average rose 126 points to 16,510, the S&P 500 gained 9 points at 1,967, the Nasdaq advanced 2 points to 4,829, and the Russell 2000 was down 2 points at 1,161.

The NYSE’s primary market traded about 822 million shares with total volume of 3.3 billion. The Nasdaq crossed over 2 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, decliners led by 1.1- to-1.

IBB Chart
Click to Enlarge

At the beginning of a correction or bear market, even previously strong sectors — like biotech — are subject to highly volatile days.

The heavy selling in IBB drove the ETF below its 200-day moving average and confirmed an intermediate downtrend by failing to rise above its 50-day moving average.

The breakdown from an ascending wedge will probably end in at least a 20% decline from the July 20 high at $400 for a minimum downside target of $320. IBB could even challenge the low of $284, made on Aug. 24, but that is unlikely.

Conclusion

While IBB looks poised for a deeper decline, the growth rate of the biotech group is spectacular. Traders may want to place good ’til cancelled (GTC) orders to buy their favorite biotech stocks at a 20% discount to their recent highs. See the Trade of the Day for one of my favorites in the sector.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-biotech-on-sale-get-ready-to-buy/.

©2024 InvestorPlace Media, LLC