BIOTECHS SHOW NEW HEALTHCARE LEADERSHIP -- BIOTECH HOLDERS NEAR RECORD HIGH -- BIOGEN NEARS BULLISH BREAKOUT AS AMGEN TURNS UP -- GILEAD HITS SIX-MONTH HIGH WHILE GENZYME EXCEEDS 200-DAY LINE -- FIDELITY BIOTECH FUND IS WEEK'S TOP GAINER
BIOTECH HOLDERS TEST OLD HIGHS ... We've been writing for several months about the new upside leadership in the healthcare sector, and have taken that as a sign that investors were turning a bit more defensive. [The same is true of consumer staple stocks]. Chart 1 shows the Health Care SPDR (XLV) bouncing off its 50-day moving average. More importantly, its relative strength ratio turned up during the fourth quarter for the first time since the spring of 2009 when the last bull market started. Healthcare is the market's top sector in 2010. Within healthcare, biotechs have started to show new leadership since the start of the new year. Chart 2 shows Biotech Holders (BBH) trading at the highest level in six months and on the verge of hitting a new record high. The BBH/SPX ratio (top of chart) has just started to turn up which shows new market leadership. The BBH/XLV ratio (below chart) shows biotechs starting to show leadership within the healthcare sector.
Chart 1
Chart 2
BIOGEN NEARS BULLISH BREAKOUT...AMGEN TURNS UP ... We're limiting our attention here to four of the biggest stocks in the Biotech Holders. All show promising chart patterns. The weekly bars in Chart 3 show Biogen Idec testing its spring 2009 high near 55 and possibly on the verge of a bullish breakout. A decisive close through that chart barrier would turn its trend from sideways to up. The weekly bars in Chart 4 show Amgen in a huge "triangular" shaped formation since mid-2008. That type of pattern usually has bullish implications. Amgen hit a three-month high this week and has broken a six-month down trendline. Amgen is the biggest BBH holding.
Chart 3
Chart 4
GILEAD ALSO LOOKS STRONG... Gilead Sciences is the top biotech gainer over the last week. It had a strong chart week as well. The daily bars in Chart 5 show the stock breaking out to a new six-month high on strong volume. It gets even better. The weekly bars in Chart 6 show GILD also breaking the upper trendline of an eighteen month "symmetrical triangle" which is a bullish pattern. The next big test for Gilead will be its late July peak at 50.
Chart 5
Chart 6
GENZYME EXCEEDS 200-DAY LINE... Even Genzyme General, which has been a relative laggard in the biotech group, had a good chart week. The daily bars in Chart 7 show the stock having cleared its 200-day average (for the first time in more than a year). Notice the uptick in its relative strength line (below chart). There's more good news. The weekly bars in Chart 8 show Genzyme also exceeding a major resistance line extending back to the middle of 2008. In order to turn its major trend upward, however, the stock still needs to clear its September peak near 58. Even with that caveat, chart evidence suggests that an important bottom has probably been seen. When stock picking, it's always a tough choice between buying a group leader (like Biogen) or a group laggard like Genzyme (although I favor buying group leaders). It's easier to buy the whole group. You can do that by buying the Biotech Holders which include all four stocks shown here. Or you can buy a biotech mutual fund.
Chart 7
Chart 8
FIDELITY BIOTECH IS TOP WEEKLY SECTOR FUND... A glance at the Fidelity Market Sector Carpet reveals that the Fidelity Select Biotechnology (FIBOX) is its top sector fund over the last week. The purple line in Chart 9 (through Monday) shows the biotech fund challenging its September peak near 68. Just as important is the recent upturn in the FIBOX/SPX ratio (blue line). Biotechs (and healthcare in general) had been market laggards during the 2009 bull run. Not anymore. It appears that nervous investors are flocking to healthcare stocks as a defensive play. That's especially true in a market that's come too far too fast and may be entering a period of consolidation for several months.
Chart 9
