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How to Play the Biotech Breakout

What's the best stock to buy in this sector?

Biotech stocks are breaking out. It's understandable if investors believe this is strictly due to advancements in vaccines and therapeutics related to the Covid-19 pandemic. However, the charts are telling us there is more to this story. 


First let's look at the sector as a whole. The iShares Nasdaq Biotech ETF, symbol IBB, contains some of the biggest names in the sector. On Monday morning, IBB made a big move after breaking out of an inverted head and shoulders pattern. In the process, the biotech ETF reached its highest level since July. 


A lot of the excitement in this sector is focused on Regeneron, symbol REGN. Investors are excited because President Trump was given the drug maker's antibody treatment. Because of this, Regeneron climbed to a one month high. By lunchtime on Monday, the stock had traded at nearly 4x its average daily volume. 

Here's the trouble with Regeneron: we've seen quite a few stocks take off this year due to excitement over advancements related to Covid-19. Then, the stock falls back when the hype wears off. Moderna, BioNTech, and Gilead Sciences are just three examples of this phenomenon. 


My favorite chart in this sector belongs to Repligen, symbol RGEN. This stock has spent the past two months constructing a saucer pattern. This pattern projects the stock to $180 per share.

In addition, Repligen has just received a buy signal from its MACD (moving average convergence divergence) indicator, shaded in yellow. 

The bottom line: when it comes to the biotech stocks, the obvious play might not be the best play. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.