Don’t dump biotechnology stocks yet, says chart guru Thomas Dorsey

http://www.marketwatch.com/story/dont-bet-against-biotechs-yet-says-chart-guru-thomas-dorsey-2015-09-23?siteid=yhoof2

Biotech sector is still No. 1 in Dorsey Wright’s relative-strength sector rankings

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Biotech sector’s trend of outperformance remains intact

Biotechnology stocks took a big hit this week amid outrage over surge-pricing practices, but one widely-followed technical analyst said it’s still too early to bet against the sector.
The SPDR S&P Biotech exchange traded fund XBI, -1.19%  has tumbled 7.7% this week through Wednesday, as Presidential Candidate Hillary Clinton unveiled a plan to counter high drug prices, in response to a New York Times article about a company that raised the price of a drug to $750 from $13.50 overnight. The iShares Nasdaq Biotechnology ETF IBB, -1.20%  has shed 8.2% amid a four-session losing streak.
That selloff may have spooked some investors in the high-flying sector—the S&P Biotech ETF is still up 18% year to date—just as the broader market struggles to regain its bullish composure—the S&P 500 index SPX, -1.01%  is down 5.8% this year.

But Thomas Dorsey, co-founder of Dorsey Wright & Associates, a subsidiary of Nasdaq, said the recent volatility in the biotech sector was still just noise, as it is still No. 1 in Dorsey Wright’s relative-strength sector rankings. And as the chart above shows, the biotech sector’s uptrend relative to the S&P 500 remains firmly in place.
“Everything still suggests [the biotech sector] still has the strength, not just in itself, but on a relative basis,” he said.
Dorsey Wright has a history of outperforming the broader market by simply betting on relative-strength leaders, rather than by trying to find bargains by calculating historical valuations or profit and sales trends.
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Jay Paul for The Wall Street Journal

Thomas Dorsey (black T-shirt) meets with interns and junior staff members in 2014.

Since inception on March 6, 2014, the First Trust Dorsey Wright Focus 5 ETF FV, -1.17% which holds the five First Trust sector-and industry-tracking ETFs with the highest relative-strength rankings—it’s re-evaluated every week—has climbed 17% while the SPDR S&P 500 ETF SPY, -1.04%  has edged up 3.3%. The Focus 5 ETF has included the biotech sector FBT, -1.23%  since inception.
The other sectors held by the Focus 5 ETF in order of ranking, are health care FXH, -1.53% Internet FDN, -1.27% consumer staples FXG, -0.60%  and consumer discretionary FXD, -1.03%
Dorsey said Clinton’s plan wouldn’t change his mind about biotech stocks, as politicians and lawmakers tend to have an agenda when they announce policy initiatives. Read more about how drug-pricing policy isn’t likely to change soon.
“Do you know what doesn’t have an agenda? A relative strength chart,” Dorsey said.