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Tread carefully if you’re buying biotech stocks, traders say as group nears all-time highs

Biotechnology stocks are getting a boost.

The iShares Nasdaq Biotechnology ETF (IBB), which tracks the group, rose 2% on Wednesday on a strong day for the broader stock market. Investors have been watching the space closely following Moderna’s announcement on Monday that it was seeing positive results in an early-stage coronavirus vaccine trial.

The IBB hit an all-time high of $136.20 on Monday after the Moderna announcement. It traded up to $134.14 on Wednesday before closing at $133.91.

Investors considering buying in at these elevated levels should tread carefully, traders told CNBC’s “Trading Nation” on Wednesday.

Matt Maley, chief market strategist at Miller Tabak, warned in the interview that “two very important names” in the IBB “are starting to break down.”

“The first one is Gilead,” which has fallen more than 12% just in May, Maley said, pointing to its chart.

“It’s broken below its trend line since the March lows and it’s also dropped below its 50-day moving average, which has been very good support all year long for the stock,” Maley said. “In each case, it’s broken well below that line, so that’s a concern.”

Gilead ended trading up 2% at $73.89 on Wednesday.

The other stock that concerned Maley was Amgen.

“It’s broken below its trend line since the winter months, but it is now at the very bottom or testing the bottom end of a sideways channel that’s been in for the last month,” he said.

“If it breaks below that level [at $227.43], that will also confirm that that stock, or the trend in that one, has broken down,” Maley warned. Amgen rose less than half of 1% Wednesday, closing at $227.87.

The IBB holds 211 stocks total weighted by market cap, meaning the largest companies account for the biggest chunk of its portfolio. Its top four holdings — Vertex Pharmaceuticals, Amgen, Gilead and Regeneron — account for nearly 30% of the ETF.

“If [Gilead and Amgen] start to break down, it could be a problem for the group,” Maley said. “Now, nobody wants to short any of these names because … if you get a nice discovery on [a] Covid-19 vaccine, the group’s going to go do very nicely. But I just think people don’t want to be aggressive after the big move we’ve had, given that these two stocks are starting to show some cracks.”

Mark Tepper, president and CEO of Strategic Wealth Partners, said in the same interview that “it makes sense right now to be selective.”

“This is not a situation where I’d be looking to just blindly buy the group and hop into the IBB ETF,” he said. “Price matters.”

Although the race for a Covid-19 cure is front and center, “cancer’s not asleep and it’s taken far more lives than Covid, so, … we want to be in stocks with an oncology focus,” Tepper said.

“We prefer a name like Exact Sciences,” he said. “We did just trim our position a little bit because it is up over 100% off its low, but with Exact, you’re getting a company that offers advance detection when it comes to colorectal cancer, breast cancer, prostate cancer, so, they’re really at the cutting edge.”

“There have certainly been some short-term headwinds for the stock,” Tepper added. “Elective procedures have kind of been kicked down the road. But as those things ramp back up, the headwinds are going to fade, and we like this as a long-term play.”

Exact Sciences shares closed over 2% higher at $85.01 on Wednesday.

Disclosure: Strategic Wealth Partners owns shares of Exact Sciences.

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