BALTIMORE (Stockpickr) -- Biotech stocks have been going bananas in 2015. For a year that's been characterized by corralling the big stock indices in a narrow trading range, biotech stocks have been on fire.
Since the calendar flipped to January, the S&P 500 index has just barely managed to move 3% higher. Meanwhile, the SPDR S&P Biotech ETF (XBI) is up 40% over that same stretch. That's no fluke. With a spate of major drug approvals and a huge uptick in M&A activity, it's not surprising that the whole biotechnology industry has been in rally-mode this year.
And while it seems like most investors are trying to pick a top in biotechs, some of the hottest biotech stocks look ready to kick off another leg higher this summer. To take advantage of those opportunities, we're turning to the charts for a technical look at five biotech stocks that look ready to make big moves.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Up first is $22 billion biotech firm BioMarin Pharmaceutical (BMRN). This drug maker is enjoying a pretty phenomenal year in 2015: shares have rallied more than 53% since the start of the year. But don't worry if you've missed the move so far. BioMarin looks ready to kick off a second leg higher after triggering a breakout last week.
BioMarin spent most of the last few months forming a pretty textbook ascending triangle pattern, a bullish price setup formed by horizontal resistance above shares at $130 and uptrending support to the downside. Basically, as BioMarin's stock bounced between those two levels, it had been getting squeezed closer and closer to a breakout above that $130 price ceiling. That buy signal got confirmed with last week's move through resistance.
Now shares are consolidating just above that breakout level, gearing up for their next move up.
Relative Strength, (not to be confused with RSI) adds some extra evidence to the upside in BioMarin right now. That's because relative strength has been in an uptrend of its own since last fall, which confirms that this stock isn't just moving higher -- it's also outperforming the rest of the market long-term.
As long as that relative strength uptrend remains intact, expect BioMarin to keep on beating the rest of the market too.
We're seeing the exact same price setup in shares of $93 billion biopharmaceutical stock Celgene (CELG). The big difference is that this ascending triangle setup isn't quite as far along; it triggers on a move through $120 resistance. That's the big level to keep a close eye on this week if you're interested in buying Celgene.
Why all of that significance at that $120 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in Celgene, are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Celgene's stock.
The $120 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $120 so significant – the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
If you decide to buy Celgene on the breakout above $120, consider parking a protective stop on the other side of the 200-day moving average. That level has been acting like a good proxy for support for the last two months now.
$3.8 billion biopharmaceutical stock Dyax (DYAX) is looking buyable this week thanks to a triangle of a different sort.
After gapping dramatically higher at the start of April on the heels of clinical trial results, Dyax was starting to look toppy thanks to a descending triangle pattern, the bearish inverse of the bullish setups in BioMarin and Celgene. But the downside trade in Dyax never triggered. Instead, shares broke to the top-side, invalidating the bearish setup in shares.
The good news for Dyax shareholders is that a broken bearish setup is often more positive than an outright bullish setup.
This setup is a good reminder of why it's a big mistake to try to anticipate a move rather than being reactionary. Price patterns don't become high-probability trades until they actually trigger. The breakout above prior resistance at $25.50 means that increasingly eager buyers were able to absorb the supply of shares that had been squeezing shares in from April highs at $30. Now, it's likely that we'll see that $30 high-water mark get re-tested from here.
If you're looking for an opportunity to buy Dyax, now looks like as good a time as ever -- just be sure to use a protective stop on the other side of $24 support.
It doesn't take an expert trader to figure out what's been going on in shares of $53 billion biopharma stock Regeneron Pharmaceuticals (REGN). A quick peek at the chart should tell you pretty much everything you need to know about this stock's trajectory. Put simply, shares have been moving up and to the right, and that trend isn't showing any signs of abating this summer.
More to the point, Regeneron has been a "buy the dips stock" since last fall, and as shares come off another dip from last week, it makes sense to be a buyer again here. In technical parlance, Regeneron has been bouncing its way higher in an uptrending channel, bouncing on each touch of trend line support at the bottom of the channel. The 50-day moving average has been a good proxy for support since March, and last week's bounce off of the 50-day means that it makes sense to buy here.
Waiting for that bounce is important for two key reasons: It's the spot where shares have the most room to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before the channel breaks, and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for this bounce to happen first, you're ensuring Regeneron can actually still catch a bid along that line before you put your money on shares.
Keep a stop on the other side of the 50-day moving average if you decide to buy here. If that line in the sand gets violated, then you don't want to own Regeneron anymore.
Sliding down the size spectrum brings us to PDL BioPharma (PDLI), a billion-dollar biotech licensing stock. From a performance standpoint, PDL hasn't exactly fared as well as your typical biotech stock. Shares have sold off by more than 32% in the last year alone. But long-suffering shareholders could be in store for a reprieve.
Since May, PDL has been forming a double bottom pattern, a bullish reversal setup that looks just like it sounds. The setup is formed by a pair of swing lows that find support at approximately the same price level. The buy signal comes on a breakout through the peak that separates though two troughs. For PDL, that's the $6.70 resistance level on the chart.
Momentum, measured by 14-day RSI, is our side indicator to watch on the PDL BioPharma trade. Our momentum gauge is signaling a bullish divergence -- it made higher lows on each of the two bottoms in PDL's price action. Just remember that PDL doesn't become a high-probability trade until buyers can muster the strength to sustain shares above $6.70.