Biotechnology stocks are at an interesting juncture. The chart below shows the Amex Biotech index (BTK) with its seasonal pattern. The index itself is just peaking its head above a bullish ascending triangle pattern. Seasonality is in sync with a year-end rally.
While the short intensity for most groups and sectors have dropped off in recent months, biotechnology sports (see chart below) increased levels of short selling. Increased short intensity provides increased opportunity for short squeezes. Our group rank for biotechnology is 26th out of 139 groups, and our biotechnology advance/decline line also looks like a bullish ascending triangle pattern.
Given the above, and given the high beta nature of biotechnology stocks, if there is to be a Santa rally that spills over into the New Year, the biotechnology group has a reasonable chance of outperforming most other groups, in our opinion.
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