Biotech stocks were dealt a heavy blow on Monday. The champion of our aging bull market fell 4.2% on the day amid heavy trading volume.
Let’s take a deeper look into Wall Street’s favorite biotech ETF, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), to assess the damage.
The chart of IBB boasts a couple bearish developments that should be worrying shareholders. For starters, a new slightly lower pivot high has taken root that suggests we may be in the early innings of a double top formation. A break below the $334 support zone would seal the deal by completing and confirming the topping pattern.
Signs of distribution have multiplied over the past six weeks with high-volume down days outnumbering high-volume up days by a large margin. This relentless selling pressure needs to let up in order for IBB to continue its uptrend.
In light of the mounting bearish evidence in the land of biotech, here are three vulnerable biotech stocks ripe for bearish plays.
3 Biotech Stocks to Sell Now: Biogen Inc (BIIB)
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One of the largest holdings in IBB, Biogen Inc (NASDAQ:BIIB) finds itself square in the sights of the bears.
Since ascending to $480 last month, the big biotech stock has fallen almost a hundred bucks in short order. The latest stage of profit-taking was spurred by its quarterly earnings release last week.
With BIIB now soundly below its 50-day moving average, lower support levels are exerting their gravitational pull. During its ascent the $360 level acted as major resistance, stymieing multiple rally attempts. Now that we sit atop the pivotal zone, expect it to act as the next major support for BIIB stock.
That means another $30 of downside could be in the cards. Buy the Jun $390 puts for $17.70 to profit.
3 Biotech Stocks to Sell Now: Celgene Corporation (CELG)
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Celgene Corporation (NASDAQ:CELG) has been beset by choppy, toppy price action for months now.
Monday’s swoon was the latest development in its ongoing topping process. The heavy volume added legitimacy to the downturn, which was especially ill-timed following a valiant rally attempt by the bulls the day prior. CELG now rests decisively below a declining 50-day moving average.
Should the $112.50 support zone give way, the topping pattern in CELG stock will be confirmed and a full-fledged downtrend will take root. Buy the Jun $115 puts for $5.85.
3 Biotech Stocks to Sell Now: Alexion Pharmaceuticals, Inc. (ALXN)
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Rounding out our list of vulnerable biotech stocks is Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN).
Of the three wounded stocks ALXN definitely claims the title for messiest chart.
The price action of late has been a veritable chop-fest. The sideways slop has both the 20- and 50-day moving averages treading water until the stock finally decides its next direction. If the weakness in the IBB ETF is any indication, however, I suspect the resolution of Alexion’s tug-of-war may well be to the downside.
The abundance of high-volume down days amid the recent chop seems to favor a bearish outcome as well. Watch for a break below the $170 level to confirm the thesis. Buy the Jun $175 puts for $8.10.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
