Friday, September 25, 2015

Biotech $IBB on Sale, Get Ready to Buy

Stocks opened the week with on-balance gains, but biotechnology stocks fell sharply with iShares NASDAQ Biotechnology Index (ETF) (IBB) plummeting 4.5% on the day. This made health care the only sector of the S&P 500 to show a loss, down 1.4%.

Presidential candidate Hillary Clinton was blamed for the sell-off following a tweet that she is ready to propose a plan that would target “price gouging” by specialty drugmakers.

Despite Monday’s biotech losses, IBB is still up 12.2% year to date.

At the beginning of a correction or bear market, even previously strong sectors — like biotech — are subject to highly volatile days.

The heavy selling in IBB drove the ETF below its 200-day moving average and confirmed an intermediate downtrend by failing to rise above its 50-day moving average.

The breakdown from an ascending wedge will probably end in at least a 20% decline from the July 20 high at $400 for a minimum downside target of $320. IBB could even challenge the low of $284, made on Aug. 24, but that is unlikely.

While IBB looks poised for a deeper decline, the growth rate of the biotech group is spectacular. Traders may want to place good ’til cancelled (GTC) orders to buy their favorite biotech stocks at a 20% discount to their recent highs.

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