Regeneron Soars But This Biotech ETF Is the Better Way to Get Exposure

Biotechnology giant Regeneron Pharmaceuticals (REGN) is up approximately 18% in trading Thursday on the heels of positive news on their new blockbuster drug for eyes -- Eylea. Traders could look at buying REGN but the risk/reward profile is problematic to me. A better strategy, in my opinion, would be to look at purchases of (IBB) , the iShares Biotechnology ETF, where shares of REGN have a large weighting.

Let's check the charts and indicators of the ETF. 

In the daily bar chart of IBB, below, we see a bottoming pattern playing out since January. Prices are outlining an inverse head-and-shoulders pattern. The left shoulder is back in February/March. The head in May with heavy trading volume and now the right shoulder in early September. The neckline is around $135.

A strong close above $135 on strong volume will be a breakout. Prices are trading just above the 50-day moving average line and just below the declining 200-day line.

The On-Balance-Volume (OBV) line made a low in early May and showed improvement as traders became more aggressive buyers. The Moving Average Convergence Divergence (MACD) oscillator is below the zero line but quickly turning back up. 

In the weekly Japanese candlestick chart of IBB, below, we can see how this bottom pattern has been evolving over a period of months. Two large lower shadows in May and June help identify the pivotal low. Prices are slightly below the declining 40-week moving average line.

The weekly OBV line has been steady the past four months. The MACD oscillator is moving up towards the zero line for an eventual buy signal. 

In this daily Point and Figure chart of IBB, below, we can see an upside price target in the $167 area. A trade at $136 will be a breakout. 

In this weekly Point and Figure chart of IBB, below, we can see the same $167 price target. 

Bottom-line strategy: Traders could go long IBB at current levels and on a shallow dip. Risk below $119 and add to longs above $136. The $167 area is our price target.

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