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Small Biotech: Moving Out On The Risk Curve

The biotech sector broke through upward resistance levels that have broken previous rallies in 2016. The recent rally has been led by good earnings reports and an uptick in M&A.

Biotech investors should start to think about moving slightly out on the risk curve to take advantage of the next stage of a possible longer rally.

"Tier 3" biotech stocks hold the most attraction in the small biotech space as they should do well as standalone entities but also are prime buyout candidates.

"He who is not courageous enough to take risks will accomplish nothing in life." - Muhammad Ali

The biotech sector broke through an important resistance level on Monday. This technical ceiling has been where previous rallies in biotech have gone to die a few times so far in 2016. If the sector can follow up on this move throughout the week, the next leg of the rally could be at hand.

The biotech sector posted a very strong July with an over 10% return and is up some 20% from its bear market lows. However, the main biotech indices are still down some 25% from their last peaks in late July of 2015.

This recent rise has been powered by better than expected earnings reports from large cap names like Amgen (NASDAQ:AMGN) and an uptick in M&A activity. If this recent rally has legs, biotech investors might start to move out a bit on the risk scale and put some new money to work in the small cap portion of this volatile but lucrative part of the market.

Among the small developmental concerns, I prefer to own what I...