While the dominance of megacap growth stocks has been a key factor in the latest bull run for stocks, I would argue that the next leg higher is most likely fueled by other sectors and styles taking more of a leadership role. Biotechnology stocks have recently shown renewed strength, and improving momentum may just push these names toward the top of the leaderboard. The iShares Nasdaq Biotechnology ETF (IBB) is up about 25% off the October 2023 low, pretty much matching the return of the S & P 500 over that period. After rallying into year-end 2023, the first six weeks of 2024 proved to be less optimal, with IBB pulling back from a January high around $140 to a low just below $132 in mid-February. That January peak was in line with the late 2022 and early 2023 price highs, and a pullback certainly appeared likely as the RSI (Relative Strength Index) became overbought as price retested that key resistance level. Making a comeback But three things happened over the next six weeks to suggest this was just a short-term pullback within a primary uptrend. First, when IBB dropped to around $132, that put the price right at an ascending 50-day moving average, which often serves as support during a bullish phase. Second, this level also represented a 38.2% retracement level based on the 2021 high and 2022 low, which is a widely followed support level based on the Fibonacci methodology. Finally, in a bullish phase, the RSI often comes down to around 40 during a pullback, and rarely gets below that threshold. Sure enough, the February swing low saw the RSI bottom out just above 40, confirming that this was just a brief drop within a larger uptrend for biotechs. This week, IBB has bounced off that support level, making a new 52-week high as it briefly pushed above the 50% retracement level around $140. As long as the biotechnology ETF can hold this recent breakout point, we see upside potential to at least the 61.8% retracement level around $148. That would bring the IBB back up to a price level it has not seen since the fourth quarter of 2021 and could even suggest an eventual retest of all-time highs around $175. The weekly chart reinforces that biotechnology stocks may still be in the early stages of this advance, with lots of daylight between current levels and the 2021 highs. While so many growth stocks appear overextended here, investors may be rewarded for finding ETFs like IBB with plenty of room to run. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
