The biotech sector has yet to truly “pop” in 2019 – a year in which the general market is up nearly 20%. The SPDR S&P Biotech ETF (NYSE: XBI) has only risen 10% by comparison.
It’s a sector known for huge profits and incredible areas of opportunity, but for unprepared investors, it can also be highly dangerous. Many of the products being researched or developed by biotech firms never make it to market.
The ones that do often cause the manufacturer’s stock to erupt at a moment’s notice.
On the flipside, biotech companies face plenty of regulatory risk from the FDA (among other agencies), making the volatile business of drug development even more so.
The products produced by the biotech sector are complex in nature, and in general, investors have a tough time understanding exactly what makes them desirable. That, in turn, makes choosing which stocks to buy (and when) a difficult endeavor.
In fact, even large financial institutions struggle with it. After decades of analysis, their long-term performance remains spotty at best.
Thankfully, however, not all biotech stocks are the same. Plenty of them are simply “un-tradeable” for most investors, but that doesn’t mean the entire sector should be overlooked.
Rather, it’s important to identify which ones move methodically, presenting traders with “clean” entry and exit points.
And today, after rising by week’s end, Grifols S.A. (NASDAQ: GRFS) has distinguished itself as a prime candidate for long positions.
In the weekly candlestick chart above, you can see how GRFS “got its act together” since June of this year. Before that, it resembled a typical biotech stock, chopping around indiscriminately for months.
But now, GRFS is trading beautifully, descending in graceful fashion after hitting the upper Bollinger Band (BB) in August before setting a higher low a few weeks ago.
And with stochastics at an acceptable level, the current week’s price action has pushed GRFS shares above the last five candle bodies. That’s a great sign that the stock is eyeing a bullish reversal.
However, none of that matters unless it keeps moving higher. Should GRFS take out the 5-bar range high (closest key resistance, at $20.96) by a significant amount, going long at a trade trigger of $21.06 might make sense.
Plus, because GRFS has grown far less volatile in Q2/Q3, it’s likely to keep moving in a deliberate fashion – something I love to see, as it typically results in higher probability trades.
And when it comes to short-term trading, it’s all about tipping the “scales” in your favor.
So long as you’ve got the guts to go after “picture perfect” setups, like the one GRFS is giving us now.
