Over the past week or so, the iShares NASDAQ Biotechnology Index (ETF) (IBB) has showed a bit of weakness in the charts, combating what would otherwise be a productive month for the bulls in helping to elevate the index of biotech stocks from about $240 to $272 per share.
Click to Enlarge While that may seem like a meaningful move, it remains far below the $400.79 price high reached back on July 20, 2015. And the short-term rally seems to be about out of steam, from a technical perspective.
In the accompanying chart of IBB, you’ll see three major bearish flag formations in the past year alone. The most recent one is just starting to break down as we speak.
As you can imagine, investors playing these pattern breakdowns stood to make a lot of money. So if the benchmark index of biotech stocks is in danger of making lower price lows, what are some correlated candidates on the downside that we should be considering right now?
For the answer, we turn to Profit Scanner.
One of the quickest ways to find timely bearish breakdowns is to use the Technical Event Screener found on the Profit Scanner homepage. From there, we can use the “advanced” tab, selecting the dropdown under “industry” and choosing Biotechnology. Under “Event Type” we’ll want to make sure the following boxes are all checked: classic patterns, short-term patterns and bearish (price moving downward). From there we’ll have a nice short list of stocks to filter further.
With that said, we’ve selected three bearish biotech stocks that are likely to turn into excellent shorting plays. Let’s take a look:
Biotech Stocks Ripe for a Fall: Inovio Pharmaceuticals Inc (INO)
First up, there’s Inovio Pharmaceuticals (INO). In the chart above, we have an intermediate-term continuation wedge pattern, outlined in red, which recently completed when price fell out of the formation to the downside.
According to Profit Scanner, we’re looking for the current price of $6.54 to ultimately reach a target range between $3.30 and $3.90 per share for INO. Additionally, the current calculated stop price above can be found at $7.64.
This figure is updated daily, so we’ll have to keep an eye on it.
Biotech Stocks Ripe for a Fall: Repligen Corporation (RGEN)
Next, we have Repligen (RGEN). On March 14, the system zeroed in on an Outside Bar “bearish” formation when the stock closed that day at $26.33.
An Outside Bar hints of exhaustion and potential reversal. This candlestick charting pattern develops during a strong uptrend when the trading range completely encompasses the range of the prior bar – which is exactly what we see in the chart above, outlined in red.
A day later, RGEN closed down $1.32 (-5.01%) and continues to reflect weakness going forward. With support further down at $21.35, there is still plenty of room to the downside on this one.
Biotech Stocks Ripe for a Fall: Emergent Biosolutions Inc (EBS)
Emergent BioSolutions (EBS) in another intermediate-term bearish opportunity that is currently breaking down from a diamond top formation. And the pattern is looks almost as you might imagine it would.
What you’ll see in the pattern itself is a lot of choppiness and uncertainty about the direction of the stock.
After a long uphill climb, those looking to cash out or simply short the stock are beginning to add to the downside momentum.
And with EBS, that bearish momentum has caused price to spill out with little downside support in existence until shares drift into Profit Scanner’s price target range between $24.75 and $26.50 per share.
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.