Even though the stock market has dipped overall so far this month, one of the sectors that I expect to lead a budding resurgence in equities is biotechnology. In fact, I am tracking funds in that promising arena right now.

A recent pullback in the biotechnology sector caused it to slip beneath its 50-day moving average. Normally, I do not recommend a fund if it has fallen below its 50-day moving average, but I noticed that the iShares Biotechnology Nasdaq Biotechnology (IBB) fund narrowly moved back above that performance benchmark this week. So, just as biotechnology companies try to develop pharmaceuticals that aid ailing patients, stocks in this sector could very well heal an ailing portfolio.
 

Part of what is pushing down good stocks and equity funds right now is the traditional summer swoon in the markets. With July almost here and a seasonal climb in stocks expected this fall, I’m anticipating a thriving biotechnology sector. In my view, big-picture trends give the sector staying power for the long haul.

For example, demand for biotechnology is supported by population growth around the world. An increase in the number of people will spur heightened demand for life-saving therapies. In turn, the revenues and profits of biotechnology companies should climb. In addition, the recent drop in the prices of biotechnology stocks gives bargain hunters an opportunity to maximize their profits by buying after the latest pullback.

So, what do you get with IBB? The fund seeks investment results that correspond generally to the price and yield performance of the NASDAQ Biotechnology index. This index includes some of the biggest names in the biotech industry, such as Amgen (AMGN), Teva Pharmaceutical (TEVA), Gilead Sciences (GILD) and Celgene Corp. (CELG).

These holdings performed similarly to IBB by dropping below their 50-day moving average recently, but they’ve also stayed above their 200-day moving averages. When a stock or a fund falls below its 200-day moving average, it is usually a much more bearish sign than the breaching of the shorter-term, 50-day moving average.

IBB’s share-price trajectory generally has been up for the past year. In addition, the fund has been trading above its 200-day moving average since last September. Subscribers to my Successful Investing advisory service have seen returns of nearly 9% in their long position in IBB, and I recently recommended IBB to subscribers of my ETF Trader service. That trading service is aimed at subscribers who want to make money trading fast-moving funds, so if you identify with this philosophy, then I invite to check out the service today.

As always, I am happy to answer your questions, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.