Thursday, July 31, 2008

Biotech Breakout Confirmed

Further to my Biotech on a Tear post earlier this week, today’s action confirms that biotechnology stocks are officially breaking out. The chart below is a weekly chart of IBB, the most active of the biotechnology ETFs. It shows the ferocity of the biotech move over the course of the past month, even in the face of recent disappointing news on the Alzheimer’s front that battered Elan (ELN) and Wyeth (WYE).

Factoring in today’s 3% gain, IBB is set to close at a level not seen since the end of 2001. Note also that the candlestick patterns for the previous highs made in 2004, 2006, and 2007 all show a significant reversal pattern during the week in which those highs were made. With one more day in the week and a large buffer, the current chart pattern is likely to print a bullish pattern for the full week, in addition to the new high.

If you want to see what is hot in the biotech world, the sortable biomedical sector list at Barchart.com is a good place to start.

5 comments:

transformation said...

I DONT HAVE TIME TO LOOK IT UP, right now, but IBB as i recall was so heavily weighted in DNA that it was not a good index. but, as i said, not sure.

i hate index's made up of 'one gigantic' stock!

dk

Bill Luby said...

Hi dk,

Right idea, wrong ticker. You are thinking of BBH, which has a 39% weighting in DNA (to go with 23% in GILD and 17% in AFFX) -- essentially 80% in three stocks.

As of a month ago, GILD was the #1 holding in IBB at a little over 10%, so there is sufficient diversification there to make it a meaningful (and my favorite) biotech ETF.

Cheers,

-Bill

transformation said...

thank you! exactly

transformation said...

BTW, i was an early investor in AFFX before anyone ever heard of it when i was at Morgan Stanley, initially only 1% of customer capital.

i clipped a WSJ article in 1993 mentioning Molecular Dynamics (bot by GLX), Incyte (INCY), AFFX, and one other and rode it all up from the start, making millions for my customers. to be early and to be right!

when i read the article, i set it aside and worked on my R&D for two years, and the hair on my back stood on end when i found it.

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