Wait On The DNC Before Going Long Biotech ETFs

This week is a potentially troublesome one for biotechnology stocks and the related exchange traded funds. Not only are there a spate of big-name biotech earnings scheduled to roll in, but the Democratic National Convention is taking place in Philadelphia.

Gilead Sciences, Inc. (NASDAQ:GILD) got the earnings ball rolling after Monday's close and investors weren't pleased by the company's guidance.

Combine that with the fact that political volatility has been widely cited as a problem for the biotech sector dating back to last year, and it's easy to see why some market participants are waiting for this week's convention to conclude before initiating new long positions in ETFs such as the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB).

A significant part of the biotechnology industry's struggles (and the broader healthcare sector's) since tumbling from last year's highs can be traced to political posturing. With 2016 being a presidential election year, the political commentary aimed the healthcare sector could become more amplified, dragging ETFs such as IBB and friends into an unwanted spotlight.

And in the essence of fairness, it should be noted that Republican nominee Donald Trump has dispensed his own sharp rhetoric regarding high drug prices, so healthcare stocks and ETFs are getting hit from both sides of the aisle, making ownership of this group in this particular presidential election a tricky proposition.

"The healthcare industry, specifically biotech, has been a key target of Presidential Nominee HRC (Democrat Hillary Clinton) since she was ordained back in mid-2015," said Rareview Macro founder Neil Azous in a note out Monday.

While IBB, which is down 16.5 percent year-to-date, faces some obvious political headwinds, Azous points out that the chart for the largest biotech ETF by assets is starting to possess some allure.

"If IBB can take out the 200-DMAVG and break above the rectangle this week in the face of further DNC attacks, it would be a strong signal that money continues to look for the next alternative beyond the defensive sectors," said Azous.

Amgen Inc. (NASDAQ:AMGN), IBB's largest holding at more than 8 percent of the ETF's weight, reports earnings after the close of U.S. markets Wednesday. As Azous points out, Amgen's dividend yield is essentially the same as the yield on its 10-year bonds, both of which are just over 2.4 percent.