Biotech As The Sector Turns From Lagging To Leading

biotechTaki Tsaklanos:  Just a month ago, we wrote how the health sector is looking very attractive but the chart setup in the biotech sector was even better (read: Health Sector Doing Great, But Biotechnology In A Spectacular Position). Our conclusion was that health should be watched closed it is has been the bellwether of the broad stock market in the last 6 years.

Now before updating readers on health and biotech, we want to emphasize this important investment thesis:

Taking positions in market leaders in a lagging industry at a time when broad markets start rallying is a recipe to make big money.

As soon as a rally starts, it typically takes between 6 to 18 months before the uptrend is over.

Truly big money can be made in such a period of time as investors have chosen the market leaders.

Now let’s examine what that means in the health and biotech space.

First, the sector has a great setup. The health care industry represented by the XLV ETF broke out in June of this year, only to come down and confirm its breakout with the Brexit mini-flash crash. Since then, the index has risen almost 10%.

health_care_daily_2014_July_2016

Health care was a leader until last August. Since then, it has been a laggard. Today, we see the first attempts that it wants to lead again.

The most interesting setup, however, is to be found in biotech. Although, from a chart perspective, biotech has not broken out yet, it is very close to do so. Watch this beautiful triangle formation on the next chart which identifies 280 points as the turning point.

biotech_daily_2014_July_2016

3 Market Leaders and Future Outperformers in Biotech and Health

As said, investors should chose market leaders to ensure they get a maximum profitability with a minimum of risk as a new uptrend starts. In this section, we present readers 3 great companies which will be future outperformers in health and biotech.

First, Abiomed, a mid-cap stock in medical appliances, just broke out to new all-time highs. The set up is great, as it is a leader in its sector. Watch how the company remained stable in a trading range for some 18 months. The longer the consolidation, the steeper the trend thereafter.

Abiomed_July_2016

Second, Horizon Pharma, a $3B mid cap stock with huge growth potential and an impressive roadmap, broke out before the biotech index did so. This is a sign of strength, and suggests it will be one of the outperformers as this rally in broad markets continues.

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