Biotech can be a leading indicator, here's how to trade it
XBI is +12.8% so far this week showing Relative Strength
If you are a regular viewer of my end of day videos / member of the Tribeca Trade Group you know I have been watching the Biotech group very closely. Why?
It is more of a “Risk on” Group, meaning higher beta vs the SPX
It can often lead moves (see chart below)
I want to start to see some groups possibly bottoming after the draw down we have seen this year, this is one of them
From a technical standpoint, the XBI Equally Weighted Biotech ETF is back above its June Value Area and above its 50d MA, something that hasn’t happened since March, which is a significant change. Another observation here is price did not take out the lows of this year a couple weeks back where the SPX did. Biotech has been showing relative strength the last couple weeks, a strong indication that something is changing. In the below chart, XBI is breaking above a significant resistance level so there is a technical change.
XBI SPDR S&P Biotech ETF - Daily chart
XBI/SPY vs the SPY
Observations here
the Green vertical lines indicate where Biotech / SPY has led overall moved in the market as the relationship bottomed just before the overall market
the big arrow down is when Biotech started to show relative weakness way ahead of the overall market
the small arrow to the right is indicating that Biotech has started to outperform the SPY and imo can be a good sign for overall market
Trade Idea: long XBI vs $71.5 support
In this particular group, trading the ETF is beneficial because it reduces single stock risk which is higher than normal in Biotech due to the adverse effects when a drug study is missed , especially for a small Biotech company. So I am reducing risk by trading the ETF.
That said, here are some single stocks that I am watching in Biotech that are showing Relative Strength / Leadership.
UTHR United Therapeutics Corp
United Therapeutics focuses on the strength of a balanced, value-creating biotechnology model. Its injectable drug Remodulin treats pulmonary hypertension, which affects the blood vessels between the heart and lungs; it also treats cancer and viral illnesses. The product is marketed directly and through distributors in North America, Europe, and the Asia/Pacific region. Other hypertension treatments include Adcirca, Tyvaso, and Orenitram. The company's development pipeline includes additional treatments for cardiovascular disease, as well as various cancers, respiratory conditions, and infectious diseases. The US market accounts the largest for about 95% of total revenue.
Strong earnings and a big breakout here. This stock is trending and may be a new leader within the group. I like a long here vs the break out area $210.
TMDX TransMedics Group, Inc.
TransMedics Group, Inc. operates as a biotechnology company. The Company offers transplant therapy for end-stage organ failure patients across multiple disease states. TransMedics Group serves patients in the United States.
Another stock in Biotech that is breaking out. Long here vs the breakout of $30.
VRTX Vertex Pharmaceuticals
Vertex Pharmaceuticals Incorporated discovers, develops, and commercializes pharmaceutical products. The Company develops drugs for the treatment of cystic fibrosis, cancer, inflammatory bowel, autoimmune disease, and neurological disorders. Vertex Pharmaceuticals serves healthcare sector worldwide.
Long vs $275 break of the Value Area
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