From the desk of Steve Strazza @Sstrazza
We write a lot about focusing on the secular leaders in each sector and industry. Whether it’s online retail, medical devices, or more niche areas like data-centers or mobile payments, they tend to share a common thread of innovation and technology.
Biotech fits this theme and has become an emerging leader, making new all-time highs for the first time in almost five years. It’s been one of the top-performing subsectors off the lows and one of the first to reclaim its year-to-date highs.
In this post, we’re going to drill into the space and highlight one of its strongest areas… Genomics.
This week’s Mystery Chart was the ARK Genomic Revolution ETF (ARKG) relative to the Nasdaq Biotech ETF (IBB).
Thanks to everyone for participating. Most of you were either doing nothing and waiting for a pullback or buying the breakout against its prior highs.
ARKG has consistently outperformed Biotech since its inception about five years ago and there’s nothing on this chart to make us think that will change any time soon.
However, the Biotech space has pretty much gone sideways during this time so let’s take a look at Genomics on an absolute basis as well as relative to the S&P 500 for a better view of their performance.
Price just broke out of a 5-year base and resolved to fresh all-time highs relative to the S&P 500.
On an absolute basis, ARKG just broke out of a multi-year range with explosive follow through to new highs as well. Price has now rallied more than 100% from its March low to this week’s high.
While this is definitely an area we like long-term, ARKG has moved far and fast in just two months’ time. With price currently in no-man’s land after a parabolic advance, we want to sit back and watch how gains consolidate at current levels. In fact, we’ve already seen price give back a considerable amount this week despite the strong rally from the broader market.
Let’s look at some of the leaders within Genomics. Many of these stocks are also at or near fresh highs. If ARKG is going to digest its recent gains constructively and continue higher, we’ll likely see these holdings make or maintain fresh highs as well.
We’ll start with one of the largest and most critical weightings in the Genomics ETF, Illumina (ILMN).
We want to see Illumina above its 2018/2019 highs around 370-380 before we bet on further upside for the entire space.
Not only is Illumina important due to its weighting but it is also widely considered as the leader within the field of Genomics. It would appear investors agree as the company is valued at more than double the market cap of any of its competitors or other holdings in the ETF.
The next name, while much lesser-known, is one of the top-performing components of late. Here is Twist Bioscience Corp (TWST).
Price recently resolved higher from a similar base as Illumina’s, eclipsing its key 2018-2019 highs. If ARKG is going to sustain its new highs, TWST is likely to do the same and hold above this 34.50 – 35 level.
Here is a shorter-term base in Castle Biosciences (CSTL). The company just came public last August.
A nice setup, but we really need to see price breakout affirmatively above its prior highs at 40. Price has stalled at this level over the past few weeks.
After such swift moves off the March lows, we want to watch ARKG and many of its components here to see how prices consolidate and react to these areas of potential supply. When we start seeing these components resolve or resume their paths higher, it should be a good tell for the entire space.
The bottom line is if we get a correction or any weakness, this is an area we like and will want to look to for opportunities. The healthiest thing for Genomics, and Biotech in general right now would be to digest their recent gains with some sideways action. If and when we get another leg higher, we’ll look to the stocks we covered above for confirmation of the move and as a way to express our bullish thesis.If you enjoyed this post and want access to our premium research, start your 30-day risk-free trial or sign up for our “Free Chart of the Week” to receive more free research like this.
Thanks for reading and please let us know if you have any questions!