Buying Time for Biotechnology Stocks?

Forget silicon and semiconductors! If you are a short-term trader or active investor looking to buy weakness and sell strength, then the technology you should be most interested in right now has more to do with lab coats and test tubes than iPads and Google’s $600 glasses.

Closing in oversold territory again on Wednesday were both the S&P Biotech ETF (NYSE: XBI) and the iShares Nasdaq Biotechnology Index Fund ETF (NASDAQ: IBB). Both ETFs have closed lower for three days in a row – all three in technically oversold territory – and are trading at their lowest levels since the beginning of the month.

The sharp plunge in Gilead Sciences (NASDAQ: GILD) on Friday can be credited for some share in the selling. Gilead is one of the four stocks that both funds have in common among their top 10 holdings, and shares of GILD pulled back by more than 14% in Friday’s sell-off. Other common stocks between IBB and XBI include Regeneron Pharm Inc. (NASDAQ: REGN), which closed lower for five days in a row before Wednesday’s “kick-save”, marginally higher close.

Given their pullbacks, it is little surprise that both ETFs have earned significant ratings upgrades on Wednesday. With XBI and IBB starting the day with “consider buying” ratings, the ETFs finished Wednesday’s session with 9 out of 10 ratings, our second highest possible number. Shares of XBI have a positive edge in the short-term of more than one and three-quarters of a percent. IBB has an edge of more than half a percent.

Note that Gilead earned an upgrade to a top, 10 out of 10 rating, while Regeneron will open Thursday morning with “consider buying” ratings of 9 out of 10. Both stocks are among the highest rated stocks in the sector and in our database heading into trading on Thursday.

Among the biotech stocks that XBI and IBB do not have in common among their top 10 holdings, but have also begun to retreat to levels where buyers historically have been inclined to come off the sidelines are stocks like Cepheid (NASDAQ: CPHD). Cepheid has closed lower for three in a row and is oversold above the 200-day moving average. CPHD has a “consider buying” rating of 9 out of 10, and a positive edge in the short-term of more than one and a third percent.

Be sure to read our latest from 7 Stocks You Need to Know: “Buying the Selling in Weight Watchers”.

David Penn is Editor in Chief of TradingMarkets.com