On Monday, VRX fell 18.4% on headlines that the company received a subpoena from the SEC. While VRX is not a component of the IBB (iShares Nasdaq Biotechnology ETF) or XBI (SPDR S&P Biotech ETF) ETFs they still sank -2.8% and -3.0%. In fact the Healthcare sector has seen more sector outflows than any other US sector so far in 2016 at -$3.8B (as of 2/29/16).
A few observations from the weekly IBB chart:
1. The longer term bullish trend has been broken
2. The price action paused at the 200d and 100d moving averages before taking the next leg lower. Price is currently hovering just above the 50d moving average and it looks vulnerable to another leg lower.
3. If price breaks below the 50d moving average, the next are of support is the $210 price area. That level is roughly 17% away and sets up nicely for a bearish trade.
IBB – iShares Nasdaq Biotechnology ETF
Source: Bloomberg
Considering that the 2016 election may end up to being a brutal political fight, Biotech and drug pricing may come back into the headlines and could be the catalyst for the next leg lower in Biotech.
The TribecaTradeGroup’s Trade Idea:
– Buy the IBB June 220 / 240 debit put spread @ $6.00 per contract (buying the 240 and selling the 220 put)
– Considering that IBB is an expensive option due to a higher implied volatility, the QQQs can be an alternative way to play possible weakness in the Biotech sector as the group is a 10% weight in the QQQs.
Buy the QQQ June 95/100 debit put spread @ $1.50 can also be purchased.
