Biotech Breaks Out

Last week marked the best week for U.S. stock markets in recent memory. The Dow Jones rose 2.59%; the S&P 500 leapt 4.12%; and the NASDAQ soared 5.29%.

Global markets continued to lag, as the MCSI Emerging Markets Index only rose 0.74%.

Your Bull Market Alert portfolio boasted even bigger gains, with China’s Vipshop Holdings Limited (VIPS) rocketing 11.30%; Gilead Sciences Inc. (GILD) jumping 9.89%; and The Bank of Ireland (IRE) soaring 8.85%. Gilead Sciences Inc. (GILD) also hit a new 52-week high.

Several of your positions crossed back above their 50-day moving averages and returned to a Buy. These include the The Bank of Ireland (IRE), Visa Inc. (V), Vipshop Holdings Limited (VIPS) and Gilead Sciences Inc. (GILD).

Biotech has been one of the hottest sectors in the U.S. market this year, with the Nasdaq Biotechnology index up 27.18% this year.

You already have a bet on biotechnology in your Bull Market Alert portfolio through Gilead Sciences (GILD). And this week’s Bull Market Alert recommendation increases your bets on the biotech sector through the ProShares Ultra Nasdaq Biotechnology (BIB).

BIB is a unique exchange-traded fund (ETF) that offers both a more diversified and more leveraged bet on the U.S. biotechnology sector than betting on any individual stock.

The top five holdings in the Nasdaq Biotech index include some familiar names, including:

Celgene Corporation (CELG)                        8.45%

Amgen Inc. (AMGN)                                 8.21%

Gilead Sciences, Inc. (GILD)                      8.00%

Regeneron Pharmaceuticals, Inc. (REGN)            7.76%

Biogen Idec Inc. (BIIB)                           7.29%

But what gives the ProShares Ultra Nasdaq Biotechnology (BIB) its kick in a rising market is its leverage. BIB’s performance corresponds to twice (2x) the daily performance of the underlying Nasdaq Biotechnology Index.

Just look at how BIB’s leveraged performance compares to its un-leveraged little brother, the iShares Nasdaq Biotechnology (IBB) ETF over the past six months.

As you can see, a bet on BIB made more money than IBB. But this also came at the price of higher volatility.

So buy ProShares Ultra Nasdaq Biotechnology (BIB) today, and place your stop at $84.

With the biotech sector bouncing so strongly last week, all biotech-related options are overvalued because of a high implied volatility. So I am holding off on recommending options until the sector consolidates its recent gains.

Disclosure: I am a long-term holder of BIB in my personal portfolio.

Portfolio Update

The Bank of Ireland (IRE) jumped 8.85% last week. The European Central Bank (ECB) stress testing on 130 European banks found that all but 25 passed muster — and, of those 25, 12 have already taken steps to bridge the gaps. Although reports mentioned that some of the banks were located in Ireland, IRE was not specifically identified as one. IRE moved above the 50-day moving average (MA) last week to become a BUY.

Visa Inc. (V) added 3.63%. Visa will report earnings Wednesday after markets close. Analysts’ estimates are calling for a 12% earnings per share (EPS) gain of $2.10 and revenue forecasts for a 7% gain year-over-year to $3.19 billion. Visa’s revenue growth rate is expected to increase as well. V moved back to a BUY.

Vipshop Holdings Limited (VIPS) rocketed 11.30%. VIPS’ mid-October pullback pushed its stock price to a short-term low of $167, spurring traders to go on an unbroken two-week-long buying spree. Vipshop is expected to report earnings on Nov. 11, after markets close. VIPS’ big rise last week also pushed it back to a BUY.

Gilead Sciences Inc. (GILD) jumped 9.89% last week to hit a new 52-week high. GILD’s recent high is important, as GILD has made three previous attempts to breach this resistance level since early September. Gilead will report earnings on Tuesday after markets close. GILD is yet another Bull Market Alert position that rose above the 50-day MA last week to become a BUY.

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