Craig Johnson on Biotechnology

On Monday, Craig Johnson, Chief Market Technician at Piper Jaffray, appeared on CNBC to give his thoughts on the Biotechnology space and a couple individual names that may provide further alpha among its peer group.

While the Biotechnology ETF (IBB) is up 19% so far YTD, Johnson believes there is still more to go: "We still see decent upside from here to go — perhaps about 6 percent higher from here, maybe as high as 13 percent higher." As we can see on the chart below, a rise to the previous highs we saw in 2015 (around $133/share) would add an additional 15% in returns.And from a Relative Strength standpoint, there seems to be a very strong base that has been built, with lots of upside potential. However, we are still range-bound until we break above the red resistance zone.Biotech is also showing solid strength compared to its 'parent' Sector, Healthcare (XLV), as the failed breakdown as has brought us back above support: One name that Johnson says he likes is Regeneron (REGN). "This stock has reversed the downtrend off the '17 highs. It's made a higher low and it looks like it's a pretty good setup back to about $525, so a good setup and a good risk-reward." I agree with this statement, and believe it's OK to be in this name as long as we stay above $430/share.John Petrides, Portfolio Manager at Point View Wealth, has a different name for Biotech that he thinks could make a big move higher, Gilead (GILD): I am not as big of a fan of GILD as I am of REGN at this point in the cycle. While John points out that "the stock is really attractive from a valuation standpoint, trading at less than 10 times earnings", the chart isn't very healthy. In fact, from a Relative Strength basis, it's even worse, up only 6% YTD. While Regeneron is clearly in a healthy uptrend, Gilead is struggling to hold support around $65/share. Regeneron is up almost 18% in the same time frame. One of the reasons that these two names may not be outperforming the broad Biotech space is that they are Large Cap companies, and we have seen more speculative, Small Cap stocks perform better so far in 2019.