Health-care stocks are soaring this quarter, and one part of the sector is having its best winning streak on record.
Bill Baruch, president of Blue Line Capital, says its red-hot rally could continue.
“I think it’s going higher, you know. First, fundamentally you have a high rate of FDA approvals, valuations are not too inflated. The elephant in the room is the election and some jawboning you could hear about drug prices, but the technicals here I think are great,” he said Thursday on CNBC’s “Trading Nation.”
Baruch notes an upward channel stretching back to 2015 that suggests biotech should continue to trend higher. The group also just reversed a downward stretch.
“There’s a little bit of intermediate down trend line we broke out above. That was coming from last year’s high. So, we’re trending higher right now and momentum is there,” Baruch said. “The RSI — which tells us it’s overbought — has cooled off just a little bit, and the stock has held well.”
The XBI ETF’s relative strength index, or RSI, trades at 71 after reaching a peak of 84 in November. Any reading above 70 typically suggests overbought conditions. Baruch adds that the upward channel leads him to believe the XBI ETF moves as high as $109 in 2020. That implies 12% upside.
Not everyone is buying into the rally, though. Quint Tatro, president of Joule Financial, is steering clear.
“I hate to be the Grinch on this one but I just can’t jump aboard,” Tatro said during the same segment. “Many of these stocks got absolutely crushed in Q4 of 2018 and have spent the majority of 2019 consolidating.”
The XBI ETF struggled to break above $95 until this month. It fell below $73 in October at the worst of an autumn decline.
“We would favor, if anything, some of the big boys Ilumina and Gilead and they really haven’t participated. So I think investors have to really be careful. Some of these stocks do look cheap, but could be a trap here going into the new year,” said Tatro.