The biotech sector, measured by the SPDR S&P Biotech (NYSE :), organizes what could be a massive outbreak. The ETF has been trending lower since September 2018, with shares of the ETF that have fallen by more than 12%, compared to one that has increased by more than 7%. Now the biotech ETF is perhaps on the point of a major return and can increase by as much as 8%.
That is not all, the iShares Nasdaq Biotechnology (NASDAQ :), the IBB, also challenges its own outbreak and confirms the higher position in the XBI ETF. Like the XBI, the IBB fell by more than 6% in the same period. If the IBB ETF broke out, it could even increase by 6% compared to its current levels. A rising biotech sector can also help to sketch a bullish story for the entire stock market, as investors want to take more risk.
XBI Biotech ETF breaks out
The XBI ETF has been trending lower since a peak in early September 2018. But now the ETF is challenging that downtrend and a level of technical resistance at $ 87.25. If the ETF succeeds in rising above this downward trend and the resistance level, it could rise to around $ 94, a gain of around 7.5% over the current price of around $ 87.50.
Moreover, the relative strength index for the XBI shows that at the same time the momentum in the ETF is shifting. The RSI was lower in trend from June 2018. But now that trend has been broken, and that may suggest that bullish momentum is now entering the ETF.
IBB ETF confirms the movement of the XBI higher
The IBB also shows that it is getting stronger and that there is also a trend change. The IBB ETF is now at a technical resistance level of $ 114. If the IBB were to rise above $ 114, it could continue to the highest prices since September 2018 with $ 121. That would yield a gain of around 6%. compared to the current price of $ 114.25.
Also, just like the XBI, the RSI of the IBB also shows signs of an ETF that sees a trend change. The RSI for the IBB was lower since September 2018 and has recently broken above that downward trend. It would also suggest that the momentum in the IBB ETF may become bullisher.
Risk of return?
The bullish trends that these two ETFs have seen can suggest and underline that investors in the market are actively looking for risky assets. The period of extreme volatility in the stock market from September 2018, based on the performance of these two ETFs, seems to have pushed investors into less risky parts of the market. However, a step back in these risky assets, such as the biotech group, may indicate that investors are gaining confidence in the recent rise in the stock market, making investors feel more comfortable taking on these riskier assets.
If the biotech sector can continue to climb and push higher and break through a more than one-year movement lower, this could suggest that the broader market should also continue to rise.
