BIOTECHS ARE BREAKING OUT
BIOTECH INDEX COMPLETES BULLISH TRIANGLE... The last time I looked at the Biotech Index, I described it as a potential "ascending triangle" as shown in Chart 1. That pattern is identified by two converging trendlines with the upper line flat and the lower line rising -- and is usually a bullish pattern. Today's strong action shows the BTK breaking out to a new eight-month high and resuming the uptrend that started during August. Its relative strength line is also turning up for the first time since August. The combination of absolute and relative strength is a good sign for the biotech group. One of the best ways to participate is with the Biotech Holders (BBH) shown in Chart 2. The biotech Exchange Traded Fund (ETF) allows you to buy the entire group with one purchase. The BBH has also broken out to the upside and is showing good relative strength.
Chart 1
Chart 2
BIOTECH LEADERS ... Three of the biggest stocks in the Biotech Index also happen to be leaders. The rising relative strength lines on all three stocks show their performance versus the Biotech Index. Amgen, which is the group bellwether, started leading during November and was one of the first to turn up. Biogen Idec also started to show leadership last month and recently broke out of its 2004 trading range. Genzyme has been a biotech leader since mid-year and is breaking through autumn resistance today.
Chart 3
Chart 4
Chart 5
GENENTECH IS CATCHING UP ... Genentech (DNA) is the biggest stock holding in the Biotech Holders ETF. Up until recently, DNA had been a biotech laggard. It's trying hard to catch up however. Its daily chart shows the stock trying to break through chart resistance at 55. Given the strength in the rest of the group, I think it will do it. Its relative strength line, which has been dropping since May (vs. the BTK), has just started to jump. That's a good combination. Take your pick. All four stocks have bullish patterns. Or, buy the entire group with the Biotech Holders shown in Chart 2.
Chart 6
