Biotech stocks have been brought low over the past 18 months. Both the iShares Biotechnology ETF (NASDAQ:IBB) and S&P Biotech ETF (NYSEARCA:XBI), Wall Street’s two most popular funds that track the industry, dropped 33% and 57% since peaking last February. But the losses were worse two weeks ago. Many biotechs rallied back, and both ETFs are sporting double bottom formations. Unfortunately, some components still have broken trends and remain vulnerable to further downside.
I scoured the top holdings of IBB and XBI to discover the worst charts. That means their trends remain bearish and overhead resistance will threaten recovery attempts. At a minimum, anyone bottom fishing should avoid these companies. Beyond that, they are all top biotech stocks to sell before more significant losses arrive.
For those with the good fortune of not owning these, consider them all quality picks for bear trades if you want to profit from their pain. Let me show you how.
| Ticker | Company | Price |
| ILMN | Ilumina | $190.75 |
| BIIB | Biogen | $211.07 |
| IQV | Iqvia Holdings | $212.57 |
Biotech Stocks: Ilumina (ILMN)
Drawdown Depth: -66%
Illumina (NASDAQ:ILMN) provides sequencing and array-based solutions for genetic and genomic analysis. It has a market cap near $30 billion and currently accounts for 3% of the IBB ETF. The company’s share price once topped $555 but now dwells below $200. The rapid unwind has given back five years’ worth of gains, and the chart remains abysmal. Earnings reports have done nothing but add to the selling pressure. The last four releases have sent share prices tumbling.
Despite the strong bounce from its industry last month, ILMN has been limping sideways at support. You can see the stark underperformance in the comparative relative strength indicator (lower panel in the chart). The next entry point for new bear plays will be a $180 support zone break. Usually, I’d pitch a put spread to cheapen the trade cost, but ILMN options have terrible liquidity and wide bid-ask spreads. Thus, shorting shares is the way to go if you want to wager on lower prices.
Biogen (BIIB)
Drawdown Depth: -56%
Cambridge-based Biogen (NASDAQ:BIIB) is a global biopharmaceutical giant that boasts a market cap near $30 billion. It’s the eighth largest holding in the iShares Biotechnology ETF and carries just over a 3% weighting. Its share price stopped sinking in early May and has since stabilized.
Unfortunately, the long-term chart reveals a mountain of overhead resistance. Given the many significant support zones broken on the way down, it will be a rough road to recovery. That alone makes BIIB stock one of the hardest biotech stocks to buy and thus one of the easier ones to sell.
To better illustrate the supply, I’m showing the weekly chart. The $225 price level was a bastion of support for nearly a decade. Now that we’re beneath it and all major weekly moving averages, the path of least resistance is lower.
Biogen options are liquid enough to trade but use limit orders. Given the recent stability in the share price, I think selling out-of-the-money call spreads is the way to go.
The Trade: Sell the August $240/$250 bear call spread for $1.25.
Biotech Stocks: Iqvia Holdings (IQV)
Drawdown Depth: -25%
The final pick for biotech stocks to sell is Iqvia Holdings (NYSE:IQV). At $40 billion, its market cap overshadows the other two and is primarily a byproduct of IQV stock falling less over the past year.
While there’s a bullish argument regarding the relative strength, I still view IQV as a stock to sell because of the bearish leaning chart. The moving averages haven’t provided as much guidance this year because of how many times we’ve sliced through them. Instead, it’s the continued inability of prices to break resistance and make higher highs.
Provided that continues, IQV is a contender for bearish trades. That said, I would change my tune if we break above $230.
Like ILMN, the activity in IQV stock options leaves much to be desired. Steer clear of them and short the stock if you want to bet with bears.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
