CHARTING SOME BIOTECH LEADERS -- WHY THE TWO BIOTECH ETFS LOOK SO DIFFERENT

BIOTECH INDEX TESTS EARLY 2004 HIGH ... On Friday I showed the Biotechnology Index breaking out to new 52-week high. It's hitting another new high today and very close to challenging its early 2004 high. There are several ways to participate in the biotech rally. One is buy some of bigger biotech stocks or some of the leaders. Another is via one of two biotech ETFs. Those of you watching CNBC are aware that there's a big biotech show going on in Pennsylvania. That may be causing some renewed interest in the biotech group.

Chart 1

MILLENNIUM JUMPS ON VOLUME... Chart 2 shows a biotech stock that's caused some excitement over the last couple of days. Millennium Pharmaceuticals has jumped to a five-month high on very heavy volume. It's approaching the 200-day moving average.

Chart 2

AMGEN BOUNCING OFF 200-DAY LINE ... Amgen is the bellwether of the biotech group. Chart 3 shows it bouncing off its 50- and 200-day moving averages. Friday's volume bar shows heavy upside volume. Its relative strength line may also be starting to turn up. Amgen carries a lot of weight in biotech Exchange Traded Funds. Another stock that carries a lot of weight is Genentech.

Chart 3

DNA DOMINATES BIOTECH HOLDERS... Another big biotech leader is Genentech (DNA). Chart 4 shows the stock soaring since mid-March to a new record high. That helps explains the discrepancy between the two available biotech Exchange Traded Funds. The Biotech Holders (BBH) shown in Chart 5 look almost exactly like the chart of DNA. That's because DNA is the biggest holding in the BBH (32%). [Amgen is second at 27%]. In my view, that makes the BBH too dangerous to buy at these levels and too dependent on one stock. A better alternative may be Biotech iShares.

Chart 4

Chart 5

BIOTECH ISHARES ARE JUST BREAKING OUT... The Biotech iShares shown in Chart 6 have just broken out to a four-month high (on rising volume) and nearing a challange of their 200-day moving average. The relative strength ratio is starting to rise as well. The IBB looks to be a much cheaper (and less risky) alternative to the BBH. Judging from comparative volume levels, the IBB also appears to be the more liquid of the two biotech ETFs.

Chart 6