The back story: The biotech industry started the summer making good news headlines, with the iShares Nasdaq Biotechnology ETF (IBB) breaking $300 on June 19 and popping up past $320 in a matter of days. It peaked at $327.34 on July 27, and then started a fast hard slide as the dog days of summer arrived, losing 7 percent of its value in two weeks’ time.
The set-up: I think the $300 level is going to be pretty stiff support here, but I also think there is a good chance that biotech makes a new high before the end of the year. Everybody was scared of what President Trump would do and how it would affect the biotech industry, but those worried have passed, again, for now.
The play: For a longer-term play, I am looking at IBB shares, starting a position now. If $300 proves to be the support level I expect, and new highs are to be tested here, the risk-reward is right.
As a short-term trade, I am currently holding IBB Sept. 15 $315 call options – purchased over the last week – and I am watching the Direxion Daily S&P Biotech Bull 3X ETF (LABU). I’ll watch for a test of the support level before trading there, but ultimately I think biotechs offer a good look both as a short-term play and a longer-term hold.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs. At the time this was published on RagingBull.com, he held Sept. 15 $315 options on IBB but had no shares or open orders in it, and he had no position whatsoever in LABU. He is looking to play both ETFs as described in this commentary.