After a potent, six-year run following the March 2009 equity market lows, the iShares NASDAQ Biotechnology Index (ETF) (IBB) has broken down through the major upward trendline that once supported its price.
With lower lows in place, bearish investors are starting to get a whiff of opportunity.
Using Profit Scanner, we can analyze the biotech industry in an effort to locate and take advantage of timely shorting setups. Of the 26 results that appeared on the list of bearish biotech stocks, we were able to choose from a variety of technical patterns that the system believes to be historically reliable when playing the downside.
That said, we’ve gone ahead and selected three examples of stocks that fit the criteria outlined above. Here are the results:
Bearish Biotech Stocks: Five Prime Therapeutics Inc (FPRX)
Five Prime Therapeutics Inc (FPRX) is a clinical-stage biotechnology group focusing on the discovery and development of protein therapeutics that help in treating patients with various forms of cancer (gastric, lung, mesothelioma, etc.).
In the chart above, we see a bearish “head-and-shoulders” pattern outlined in red. This is a common and reliable topping pattern that is formed following a major gap up in the stock going all the way back to last October.
It is common for gaps such as this one to be filled, and that’s certainly one of the many reasons shares have sputtered out this year.
The recent break of the neckline to the downside tells us that additional price pressure over the intermediate term should materialize, creating an opportunity for short-sellers who are betting that FPRX’s price will eventually retreat back to Profit Scanner’s ambitious $15 target.
Bearish Biotech Stocks: Dermira Inc (DERM)
Dermira Inc (DERM) is also a competitor in the biopharmaceutical space, focusing on bringing medical dermatology products to professionals and patients alike.
The system flagged the stock as one that has undergone a long-term pattern development, indicating that its price could fall all the way down to support levels located in the $12 to $14 range.
With shares currently trading at around $23, a drop to the conservative price target would yield short-position gains of up to 39.1%.
Alternatively, key resistance can be found higher up at $27.73, which is an important level to consider when placing an effective stop loss. In fact, Profit Scanner calculates the “buy to cover” stop loss for you. In this case, a viable exit point can be found at $29.57. These calculations are updated daily and offer investors the ability to set trailing stops at a customized percentage based on the user’s own risk tolerance.
In the chart of DERM above, you can see that Profit Scanner makes it very easy for investors to quickly recognize relevant technical developments. In this case, we see a “head-and-shoulders” pattern outlined in red. The nearly horizontal line drawn below the shoulders represents the all-important “neckline,” which is where bearish investors pounced once that level of support melted away.
Instead of having to monitor several stocks on a daily basis, Profit Scanner’s screening tool informs us when a bearish breakdown is occurring so that we can scan through all of our options and act quickly in an effort to maximize gains.
Bearish Biotech Stocks: Applied Genetic Technologies Corp (AGTC)
Applied Genetic Technologies Corp (AGTC) is a developer of gene therapy products for inherited and acquired diseases (respiratory problems, blindness, color blindness, etc.). In the chart above, you’ll notice that the stock has gone through some volatile periods, including a late-2015, year-end rally that fell apart just as quickly as it materialized.
More recently, shares had broken to the downside from what Profit Scanner deemed to be a bearish “descending triangle” pattern.
With the stock making lower highs and consistent lows, it was a good indication that sellers were more aggressive and well prepared to continue the bigger-picture push downward.
That said, the system was looking for a price target range of $10.90 to $11.50 over the short term. The range was proven correct when the stock hit an $11.14 low on Feb. 9.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.