Biotech - Way to go

In this tough market what is looking good? Practically all sectors are beaten down, in a downtrend and are not in any way showing signs of a revival. There may be intermediate rallies in the short term (like the banks which rebounded almost 50-100% from their lows) but those would just be traps for investors. The real problems of the economy which are built on years of mismanagement of the credit and housing markets, would not go by so easily.

There is one sector though which although risky is hitting new highs and may buck this downtrend. And the better part is the more the economy worsens the better it can turn out. And that sector is Biotech. If you look at the HOLDRS Biotech ETF which is near a 3 year high and looks to shine in the current market. It's top 10 holdings contain mega biotechs including Genentech, Gilead, Amgen, Biogen Idec and more. Normally in a recession economy biotechs do well. And this time it looks no different. But it maybe that we are right at the start of a cycle that can take the biotechs to their next level. A lot of these companies have strong drug pipelines. And the sector as a whole has languished in recent years.

A note of caution though. The whole sector is at a multi-year high and in no way broken out to start a new upturn. So critical resistance levels are near and it may take sometime for the sector to break out from there. But I am optimistic that it will do so looking at the current trend. The BBH would enter a resistence level at around 205-210 which is it's 2005 high. And currently it is in an overbought state. So except some consolidation in the near term. But over a period of 3-6 months there is a possibility that it may break out to new highs.

Disclosure: I do not hold position in BBH or any of the stocks mentioned here.