Biotech experiences a major breakout, but technician makes warning

Biotechnology Sector

From Annie Pei: Biotech’s looking like a healthy bet these days.

Since hitting its lows on Dec. 26, the group had soared more than 20 percent as of Friday, and was posting its best start to a year since 2012. And according to Washington Crossing Advisors portfolio manager Chad Morganlander, the good times are set to roll on.

“You could see a bit of an underperformance in the short run, but when you look six to 12 months, we would be buyers of the biotech index,” Morganlander said Friday on CNBC’s “Trading Nation.” “We believe they’re going to continue to grow on the top line well above the S&P 500 for revenues as well as for earnings. We think the consolidation of the industry has just begun and will continue.”

Morganlander also believes biotech will serve as a “safe haven” trade if global growth starts to decelerate, especially given its strong fundamentals.

The group of stocks has been bolstered by a flurry of unexpected mega-deals in the space as of late, including Bristol-Myers scooping up Celgene for a whopping $74 billion and Eli Lilly’s $8 billion deal for cancer gene therapy company Loxo Oncology.

But Newton Advisors technician Mark Newton says investors might want to wait a bit before getting into biotech, saying the sector’s rapid run may be a little too extreme. He points out that since August, the once-battered sector has actually regained about half of its losses, which is “good on an intermediate basis.” However, he encourages investors to wait for a dip before buying.

“I look at charts of things like the XBI, the sector SPDR S&P ETF, and my thinking is if it gets back to the mid-$70s, that’s really a better risk-reward to buy into dips versus thinking you chase it here, ” he said Friday on “Trading Nation.”

Since the beginning of the year, the XBI has surged nearly 15 percent as of early Monday.

The SPDR S&P Biotech ETF (XBI) was trading at $81.14 per share on Monday afternoon, down $0.86 (-1.05%). Year-to-date, XBI has declined -4.33%, versus a -3.03% rise in the benchmark S&P 500 index during the same period.

XBI currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 34 ETFs in the Health & Biotech ETFs category.

This article is brought to you courtesy of CNBC.