Biotechnology stocks were once overhyped 100 baggers stocks. Not so in the last 5 years as that stock market segment has essentially gone nowhere in that same time period. Followers know by now that we hold a bullish stock forecast for 2020 and 2021: Dow Jones Forecast (32,000 Points) as well as Stock Market Forecasting Cycle Predicts Bull Market In 2020. With that in mind it looks like top biotechnology stocks might go up strongly again. Our top biotechnology stocks forecast is bullish for 2020. It is another 2020 forecast in our annual series of forecasts. Some of them are bullish, our top biotechnology stocks forecast is certainly one of the most bullish ones for 2020 and 2021.
Before digging into the details of our top biotechnology stocks forecast we want to point out this very important investing insight.
Biotech back after 5 years
When a sector is red hot, it typically is near the end (or passed the end) of its bull market. What smart investors need is a sector that is forgotten, not loved, not hyped by the media. Ideally, the sector got dumped and recovered from it.
As said in our 100 investing tips:
Consolidations create a very bullish long term outlook for any asset or market. Essentially, during sideways trading, sellers tend to leave the market every time the price peaks. If a consolidation goes on long enough all sellers leave this market. That’s the ideal market condition for a new bullish trend.
Identifying and tracking consolidations on monthly and weekly timeframes is key to find future explosive breakouts. Now that’s exactly what we want to share in this top biotechnology stocks forecast: a potentially explosive breakout after a 5 year bear market combined with a consolidation period.
Biotech stock news heating up
One might argue that currently the news on biotechnology stocks is also rather bullish. At least that’s what we would conclude from these headlines in recent weeks:
Biotech Stocks Post Their Second-Best Month of 2019 (Bloomberg, Nov 29th)
Biotech Stocks Are Poised to Rise in 2020, Analyst Says. Here Is His Top Pick (Barrons, Dec 13th)
There’s more upside for biotech even after 24% gains in two months (MarketWatch, Dec 13th)
Biotech is beating health care by double this year (CNBC, Dec 10th)
Money Is Moving Back Into Surging Biotech Funds (Barrons, Dec 6th)
Although we never look news it is worth noting that these headlines may be bullish but the number is limited. What we mean by ‘red hot’ is that there are multiple such articles per day, not per week.
We are very far away from that state, let that be clear.
Top biotechnology stocks forecast: Nasdaq breaks out in 2020
Although not a real leading indicator but the Nasdaq index is back, and it looks ‘worse than ever’ (obviously this should not be taken literally, on the contrary).
The long term Nasdaq chart has this solid uptrend from 2013 till 2017. In the 2 years that followed there was a consolidation period which coincided with what we called the ‘risk off’ period. This was similar to the period 2010-2012, as seen on below chart.
The new uptrend started officially, according to the monthly chart with our own annotations, in October of 2019. This is very promising for 2020 and beyond.
What this means for biotech stocks is a very promising outlook especially because biotech is at the verge of a giant breakout.
Top biotechnology stocks forecast: leading risk indicator breaks out in 2020
If there is one leading indicator that we really trust it is the RISK indicator: Russell 2000.
We do not use the Russell 2000 as a signal to buy the index but as a leading indicator for risk.
When the Russell 2000 is rising, especially after breaking out it signals that risk assets will be bought. We identified 1625 points in the Russell 2000 a long time ago as THE important breakout point, and start of a new risk cycle.
Coincidence or not, last week the Russell 2000 broke out above 1625 points (chart below), and it happened almost at the same time the Nasdaq ended its consolidation (chart above).
This is an amazing environment for high beta sectors like biotechnology stocks.
Top biotechnology stocks monthly chart
So with all that in mind what does all this mean for biotechnology stocks?
If anything the biotech stocks chart looks absolutely gorgeous! Let’s say there are several reasons to believe that this chart, combined with its leading indicators, suggest a bullish outlook for 2020 and beyond.
- The 5 year consolidation has a beautiful setup. This is the type of consolidation, after a breathtaking rise, that will result in a horizontal breakout. Those are the most powerful breakouts that investors can have!
- The consolidation has this horizontal resistance setup. Equally important is the almost perfect cup and handle formation. Both combined are extremely bullish.
- This sector has been selling off for 5 years. Consequently there is a strong appetite in the sector to innovate again, and create value. That certainly was not the case in 2015 at the highs. Any hype destroys innovation.
Those are the perfect conditions for the biotech space to stand up again, break out and rise similarly to how they rose earlier this decade!
Biotechnology stocks forecast: 20% to 50% upside potential in 2020 and 2021
With all this in mind we can reasonably expect a breakout to take place anytime soon. This will bring lots of bullish energy into this space.
Consequently our biotechnology stocks forecast has a minimum upside of 20% and a maximum upside of 50% in 2020 going into 2021.
It will all depend on when the sector will break out. If this happens early in 2020 we expect most of the 50% rise to materialize already in 2020.#Biotechnology #stocks will be wildly bullish in 2020. After a powerful breakout the upside potential is 20 to 50% in 12 months. The conditions are right, the chart is gorgeous. $IBB Click To Tweet
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