iShares NASDAQ Biotechnology Index (ETF) (IBB) — This ETF rallied 3.2% Tuesday on strong earnings from several major drugmakers. Chief among them was Gilead Sciences, Inc. (GILD). Gilead beat analysts’ estimates for the third consecutive quarter and raised its revenue guidance for the full year. Shares jumped 2.1%.
GILD is the second largest holding in IBB. Other top holdings include Biogen Inc (BIIB), Celgene Corporation (CELG), Amgen, Inc. (AMGN) and Regeneron Pharmaceuticals Inc (REGN).
I featured IBB in the Sept. 22 Daily Market Outlook, saying: “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.
“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.”
After hitting a low under $286 on Sept. 28, IBB consolidated in a channel up. It jumped through the top of that channel Tuesday only to run into its 50-day moving average at $328.48.
The post-earnings pop may continue today; however, look for another pullback following the majority of quarterly reports. This time, support is at the bottom of the consolidation channel at about $300.
Continue to hold IBB if you own it. New buyers should try to purchase shares under $310. Because of the outstanding long-term potential of the fund’s holdings, traders may opt not to trade out of IBB at the 200-day moving average ($348) and even add to positions on pullbacks. The longer-term price target is $400-plus.
