Chart of the Day – Biotech Bonanza, $AMGN, $BIIB, $CELG, $GILD

The health care sector has been on fire in 2013.  But within health care, biotech stocks have been absolutely blazing.  The Biotech sector is a leader on the upside once again today.  AMGN, BIIB, CELG, and GILD are up around 30%, 45%, 50%, and 45% respectively so far in 2013.  And these are not small cap biotechs with one miracle drug.  Their market caps all range between $50 and $85 billion.

Fundamentally, I still prefer health care over any other sector in the U.S. market over the long-term.   I I mentioned AMGN several times over the past 6 months as a stock with a cheap valuation, decent yield, and good growth prospects (most recently here).  But in the short-term, the stocks are starting to show signs of excessive euphoria.

A quick run-through of the charts will illustrate what I mean.

First, the 5 year weekly on AMGN:

5 year weekly chart of AMGN, Courtesy of Bloomberg

5 year weekly chart of AMGN, Courtesy of Bloomberg

The fundamentals have not drastically changed in the past year, but the stock is up almost 80% in that time.  The stock traced out a long-term base with resistance around 65, and then had a strong rise to around 85 when that resistance was broken in 2012.  It then traced out another range between 80 and 90, and has risen in almost a straight line since breaking the 90 level.

The 5 year weekly chart of BIIB is similar to AMGN, but with more overall strength over time:

5 year weekly chart of BIIB, Courtesy of Bloomberg

5 year weekly chart of BIIB, Courtesy of Bloomberg

BIIB broke out earlier, in mid-2011, and has been stronger ever since.  But again, its recent advance is much steeper than its prior advances.

CELG broke out much later than AMGN or BIIB, but its move in 2013 has been a doozy ever since it got above long-term resistance around 80:

CELG 5 year weekly chart, Courtesy of Bloomberg

CELG 5 year weekly chart, Courtesy of Bloomberg

Finally, GILD also only broke out of its long-term base within the past 12 months.  The stock has more than doubled in the past year:

GILD 5 year weekly chart, Courtesy of Bloomberg

GILD 5 year weekly chart, Courtesy of Bloomberg

Once again, the recent advance has been quite steep.

Just because stocks go up a lot does not mean they have to go down.  And there are good fundamental reasons for investors to favor the large biotech names.  But in the short run, the price action exhibited by these names is concerning for the bulls.  I would not try to fade moves this strong, but I would also be looking to lock in some gains if I were long, and certainly would be wary of entering new long positions here.

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