Trade of the Day: IBB Up 40% YTD – Buy, Sell or Hold?

iShares NASDAQ Biotechnology Index ETF (IBB) — I last reviewed this exchange-traded fund on Oct. 21, when it was trading at $272.61. At the time, I noted that I don’t normally review funds as an investment since most of our readers are oriented to short-term trading. Yet, this Morningstar five-star rated fund has since risen more than 16%, and it is up nearly 40% year to date. The question now is whether IBB should be bought, sold or held?

IBB tracks the results of an index composed of Nasdaq-listed biotech and pharmaceutical stocks. Currently, its top holdings include Celgene Corporation (CELG), Amgen, Inc. (AMGN), Regeneron Pharmaceuticals Inc (REGN), Biogen Idec Inc (BIIB), Gilead Sciences, Inc. (GILD) and Vertex Pharmaceuticals Incorporated (VRTX). I regularly review the portfolio of IBB to cherry pick its holdings for solid technical recommendations.

With a low management fee of just 0.48%, which is partially offset by an annual yield of 0.14%, its net cost is low compared with other biotech funds.

This year’s strong advance has not been without volatility. Note the 25% correction from a high above $275 in February to an April low under $208. However, the break on Friday from a double-top and a new MACD buy signal are indications that IBB may be headed higher.

Because IBB is volatile and has had a major advance, it could be subject to profit-taking. Yet, since it has issued a new buy signal, traders should make a partial new investment now with the possibility of adding to the position in January on a profit-taking correction.

IBB Chart
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