ETF Investing: There may be more pain ahead for biotech stocks
NEW YORK (MarketWatch)—Many market watchers warned Monday about biotech stocks, and the big beatdown came Wednesday.
Should you buy biotech on the dip? Some market watchers suggest holding off.
Within the largest biotech ETF, less than half of the stocks are trading above their 50-day average, down from more than 80% in the past week, said Sundial Capital Research in a note late Wednesday.
“The only other time in the fund’s history there was such rapid deterioration was Feb. 20, 2009,” Sundial said, referring to the iShares Nasdaq Biotechnology ETF IBB, -0.38% “It led to a very short-term bump, then a further decline into the ultimate low and fewer than 20% of components trading above their moving average.”
Also sounding cautious, a post Wednesday over at the iBankCoin blog said: “As this sector unwinds, you will be tempted to buy dips. I would advise you to exhibit a modicum of patience and at least wait for the margin liquidations to kick in, which should occur about 3 days from now.”
That blog was among those sounding an alarm Monday, and it described Wednesday’s drubbing as “an absolute bloodbath—one that was desperately needed.”
But the biotech bulls are also coming out of the woodwork. Biotech stocks have “more room to run,” said Todd Rosenbluth, S&P Capital IQ’s director of ETF research, in a note Thursday.
The sector has outperformed for several years, but “we think the industry’s drivers, including a robust pipeline, remain intact and have a positive fundamental outlook,” Rosenbluth wrote. He adds that investors might want to consider more diversified health-care plays with roughly 20% exposure to biotech stocks, such as the Health Care Select Sector SPDR XLV, -0.26% and the Vanguard Health Care ETF VHT, -0.23%
Meanwhile, BTIG’s Dan Greenhaus sounds somewhat neutral on biotech stocks. “The weakness in certain areas—biotech and semiconductors in particular—is, based on our conversations, giving many pause,” he wrote in a note late Wednesday.
Yet he blasts those comparing the iShares Nasdaq Biotechnology ETF’s action to the Nasdaq’s COMP, -0.26% moves in 1999 and 2000, when the tech-heavy index soared and then crashed.
“While biotech’s performance (+150% since end of 2012) has been stunning and our own bullishness on health care has been waning of late, these sorts of arguments are less than useless; they’re hurtful,” wrote Greenhaus, BTIG’s chief strategist.
The biotech ETF was roughly unchanged in early-afternoon action Thursday. That’s after erasing morning losses and slumping 4.1% the prior day, when biotech and chip stocks helped lead the stock market lower. The chart above shows the fund trading Thursday near its 50-day moving average, a level that it hasn’t closed below since October.
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ETF Investing: There may be more pain ahead for biotech stocks
