Biotechnology Stocks Showing Signs of a Bottom

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On Tuesday, the purchase of healthcare stocks offset a day of declines in the energy sector. Healthcare rose 0.7%, financials rose 0.2% and technology gained .2%. The energy sector fell 1.2%.

Energy stocks were again impacted by the failure of OPEC to reach an agreement to limit supplies of crude oil. Transocean LTD (NYSE:) shares fell 3.3%, and Marathon Oil Corporation (NYSE:) plunged 3.8%. And WTI crude fell 3.9% to $45.27 per barrel. Iran’s oil minister said that Iran will not take part in any production cuts.

However, Kinder Morgan Inc (NYSE:) holders may be pleased to learn that Canada’s Prime Minister approved the expansion of a corridor of existing pipeline that will open landlocked oil sands producers. However the P.M. turned down a proposed Enbridge Inc (USA) (NYSE:) pipeline to the West Coast that was unpopular with environmental protesters.

Gains in healthcare stocks were led by the biotechs. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:) closed slightly ahead, but UnitedHealth Group Inc (NYSE:) rose 3.5% following management’s higher guidance in both earnings and revenues.

At the close the Dow Jones Industrial Average gained 24 points at 19,122, the S&P 500 rose 3 to 2,205, the Nasdaq closed at 5,380, up 11 points, and the Russell 2000 fell 2 points to close at 1,328. The NYSE’s primary market traded 927 million shares with total volume of 3.7 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board and the Nasdaq, decliners slightly outpaced advancers. Blocks on the NYSE rose to 5,512 from 5,135 on Monday.

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Biotechnology Stocks Showing Signs of a Bottom

Rather than again reviewing the bullish trends of the major indices, I want to draw readers’ attention to a sector, biotechnology, that appears to be forming a bottom.

The first hint that a trend change could occur was in early September with a Golden Cross (50-day MA crosses 200-day MA). That led to a triple top and a decline back to the major support line connecting four lows, the last at about $247. Then as a result of the election, a break-away gap vaulted prices through first the 200-day MA and then the 50-day MA — all in one day.

After a break of such proportions, it is normal for a sector to consolidate. That is happening now, within a bullish flag. Thus, it is likely that the biotechnology sector will be the target of rotational buying. Formerly one of the strongest sectors, the group has been pummeled all year. It appears that now is their time to stage a significant year-end rally.

Conclusion: “I skate to where the puck is going to be, not to where it has been.” (Wayne Gretzky)

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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