Market Overview

Friday Slide: Opportunity Or Red Flag For Biotech ETFs? (GILD, IBB, XBI)

Don't blame all of the Nasdaq's weakness today on Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG). Using the PowerShares QQQ (Nasdaq: QQQ) as our guide, we that health care accounts for over 11% of the Nasdaq 100's weight and when it comes to Nasdaq-listed health care names, we're really talking biotech.

That sector is providing plenty of consternation today for the Nasdaq with more than one guilty party. A loss of over 14% for Gilead Sciences (Nasdaq: GILD) is ailing biotech ETFs and 7% drop for Life Technologies (Nasdaq: LIFE) isn't helping matters.

After healthy year-to-date performances for the top biotech ETFs, do Friday's declines signal buy-on-the-dip opportunities or is today's glum action a sign to take biotech profits and run? Let's see.

iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) With almost $1.8 billion in assets under management, IBB is the dominant player among biotech ETFs. Given that Gilead is its fourth-largest constituent at 6.11% and that Life Technologies represents another 1.65%, the fund is holding up fairly well today, sort of, with a loss of 1.67%. IBB was up over 16% year-to-date at the start of trading today and faces stiff resistance in the $121-$123 area.

If support isn't found at $117, IBB could tumble to $110. If that's where the declines end, then that's an excellent buy point for a potential gain of 10% or more.

First Trust NYSE Arca Biotech Index Fund (NYSE: FBT) At this writing, FBT is down almost 2% and that's probably because the ETF is home to just 20 stocks with Gilead and Life Technologies combining for over 10% of that weight. That narrow concentration cuts both ways. When an ETF's top-five holdings represent almost 30% of the fund's weight and those stocks are doing well, the ETF also does well. On the other hand, rough performances in the same day for 10% of an ETF's weight usually means bad news.

FBT either needs a deeper pullback beyond today or a move above $43 to get some new buyers involved.

Market Vectors Biotech ETF (NYSE: BBH) On what is already above average turnover, the recently split Market Vectors Biotech ETF is getting drubbed to the tune of almost 3% today. Like FBT, BBH has a concentration problem and we don't mean attention deficit disorder. The ETF is home to just 26 stocks, but over 15% of its weight is devoted to Gilead and Life Sciences. Throw in Amgen (Nasdaq: AMGN) and that trio is nearly a third of BBH's weight.

BBH has outperformed IBB this year, but lagged FBT. That said, the diversification benefits of IBB on a day like today might make it a better bet for conservative investors looking to get biotech exposure.

SPDR S&P Biotech ETF (NYSE: XBI) For today at least, the SPDR S&P Biotech ETF looks like a wise idea if for no other reason than Gilead is just 3.74% of the ETF's weight and Life Technologies is nowhere to be found. The average weighted market cap of XBI's 43 holdings is just under $8 billion, so the ETF is deep in the mid-cap spectrum without a lot of speculative small-cap fare. Consider the following:

"The best ways to take advantage of biotech stocks without the extreme volatility is by getting into IBB and XBI on corrections," according to noted biotech trader EXPstocktrader.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs FDA Intraday Update Markets Best of Benzinga

 

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