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Pop and Drop at the Biotech Corral!


The biotech sector is taking a much-needed rest after a huge rally.

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To follow up Jeff Cooper's post (subscription required) on the intense selling in biotech leaders Gilead Sciences (NASDAQ:GILD) and Incyte (NASDAQ:INCY), I wanted to step back and highlight the big pop and drop in the sector as a whole, because up until late February, it was one heck of a leader.

Biotech serves as a good measure of investors' friendliness with speculative activity as it sits in the middle of pedestrian big-cap techs and the really wild stuff like the fuel cell and marijuana companies.

The two big biotech ETFs, the iShares NASDAQ Biotechnology Index (NASDAQ:IBB) and the SPDR S&P Biotech ETF (NYSEARCA:XBI) were up 65% and 48% in 2013, respectively.

And at their peaks in late February, each was up over 20% year-to-date.

I created a chart showing the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) (shown as multicolored bars) against the relative performance of biotech (calculated as XBI divided by SPY, shown by the blue line). I chose XBI because it's a bit more diversified than IBB.

Click to enlarge

With that blue line, you can see that biotech has had an extended period of extreme outperformance -- and that the upward surge starting in early November 2013 really was a move for the ages.

So even with XBI 11% off its $172.52 February high, it could still use a bit of a break.

Twitter: @MichaelComeau

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No positions in stocks mentioned.
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