If you're a trader, it's critical you watch biotech shares.
Since 1983, the biotech sector as a whole has seen four triple-digit rallies... and even one quadruple-digit rally. That's just for the whole sector. Some individual stocks went much higher. You see, investors love the promise of cancer cures and miracle drugs, so it's easy for them to justify piling onto a rally.
That's why you don't even need a bull market to make huge gains in biotech. In any given year, a few tiny biotech companies hit it big with new procedures or drugs. So if you're hunting for giant winners that rise 300% or even 600% in a year, you must keep an eye on this space.
In my weekly service, Penny Trends, I analyze several important pieces of trading data to find great trades.
First, I want to own stocks and sectors that are acting well, that are in confirmed up-trends. This is a simple concept, but thousands of market players don't use it at all. I want to trade with the trend.
I also want to own stocks and sectors with terrific "volume action." I simply watch trading volume to see what stocks and sectors are enjoying plenty of money flow. It's a way to keep track of supply and demand for a given asset.
So how does this data look for biotech right now? Let's take a peek at the Biotech ETF, XBI. This fund holds many of the market's top medium-sized biotech companies.
As you can see, XBI suffered along with the rest of the market in January and February but it's showing life. Below XBI's price chart, you'll see a series of black and red bars. These bars show XBI's trading volume – the supply/demand picture. The black bars represent the volume on days the fund advanced in price. The red bars represent the volume on days the fund declined in price.
The blue rectangle highlights the tremendous amount of money that just flowed into XBI in early June. This "boost" pushed XBI close to a three-month high. Big rallies are almost always preceded by big volume splashes. They're kind of the "starter's gun" for a race.
The XBI isn't in a big up-trend yet. But this sector has extraordinary rally potential, so it's worth keeping an eye on it. The recent surge of money here says we might have another big biotech trend on our hands.