The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), which tracks the Nasdaq Biotechnology Index (NASDAQ:NBI), has been in free fall since the beginning of the year and is now consolidating at around the $260 per share level. Despite that the fundamentals of the entire biotech sector still look strong, remarks from U.S. Presidential candidates during their stump speeches and debates continue to rattle individual biotechnology and pharmaceutical companies. From the technical viewpoint, the index could be in the bottoming stage and investors may want to pay close attention for good entry points.

Technical Overview — About 42.75% of the holdings in the IBB index are the five big cap biotech companies, Celgene (NASDAQ:CELG), Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BIIB), Gilead Sciences (NASDAQ:GILD) and Regeneron Pharmaceuticals (NASDAQ:REGN), with a combined market cap of over $438 billion. Celgene, Amgen and Biogen have already reported their fourth-quarter 2015 earnings with Gilead Sciences and Regeneron Pharmaceuticals earnings on tap.

The share price of IBB was trading in an uptrend channel from July 2011 until July 2015, when the index reached the all-time high of $400.75 per share and began to make a trend reversal. During that time period, on July 13, Democratic presidential hopeful Hillary Clinton gave a speech at the New School in New York City on “Growth and Fairness Economy”, in which she laid out her economic vision and also touched on the subject of making prescription drugs more affordable, according to The Wall Street Journal. That could be one of the explanations for the pullback in the share price of IBB.

IBB has already made a 35.36% price correction since the shares tumbled from its all-time high to a 52-week low of $259.06 per share on January 28, compared to a 37.11% correction for IBB during the 2008 financial crisis. If the bearish sentiment continues and IBB continues to pull back further, the next support is at $247.80 per share, or the October 15, 2014 low, meaning a 38.17% price correction for IBB.

Biogen — As of February 1, Biogen has a weight of 9.53% in IBB. Despite the company reporting its fourth-quarter 2015 earnings on January 27 that exceeded the consensus estimates, there is some concern that Tecfidera sales are slowing down after several quarters of explosive growth. The stock could get a boost, as there is a potential to launch three new products this year, including Benepali, Zinbryta and an infliximab (Remicade) biosimilar. Benepali is a biosimilar candidate to the reference product Enbrel. Zinbryta is a multiple sclerosis drug jointly developed with AbbVie (NYSE:ABBV). 

Technically, BIIB has been trading in an ascending broadening wedge chart pattern since early 2013. The stock hit an all-time high of $480.18 per share on March 20 last year, after the company announced impressive data from its early stage study of Alzheimer's drug BIIB037. BIIB is now trading near the bottom of the broadening wedge at around the $250 per share level, where the stock could bounce off. Investors may want to be careful though, as a potential bearish head and shoulders chart pattern has emerged, with the neckline at $254.50 per share. The stock could pull back further to the $233.77 per share level, if the trendline support of the broadening wedge doesn’t hold.

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BIOPHARMA STOCK ANALYSIS