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Cramer: Hope for biotech in the blast zone

Looking back at the long-term charts, biotech stocks have had a strong multiyear run. That run came to a sudden halt last summer, and since then the biotechs have been in free fall. This begged the question to Jim Cramer: have these stocks finally been punished enough?

Pharma was in the blast zone on Tuesday, when new tax-inversion rules raised doubts about a deal between Allergan and Pfizer.

To gain clarity on the future of biotech, Cramer spoke with Carolyn Boroden, a technician and colleague of Cramer's at RealMoney.com. She saw major signs that the vicious correction for biotech has finally come to an end.

She started by looking at the weekly chart of the iShares Nasdaq biotechnology ETF, IBB. Boroden found that the downside pattern appears to have terminated, with IBB trading sideways since early February.

Boroden found two major patterns in play. The first was a double-bottom formation that was triggered when IBB broke out above the middle-high in the pattern on Monday.

"The double bottom suggests that the pain is over, and there might be some gains waiting in the wings," the "Mad Money" host said.






What really bolstered Boroden's confidence was the second pattern discovered using the Fibonacci methodology. Leonardo Fibonacci was a medieval mathematician who discovered a series of ratios that repeat themselves over and over again in nature. Those ratios can be applied to things such as snail shells, flowers pine cones and stock charts.

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Boroden looks at past swings of a security, and then utilizes the ratios to determine when a stock or index will change trajectory. In the case of the IBB, she found a major cluster of the ratios right below where the ETF bottomed in February, between $227 and $242, acting as a floor of support.

When Boroden found this pattern in the IBB ETF, she also looked at other individual biotech companies to see if the pattern appeared there.

Ultimately, Boroden liked the early stage rallies in Biogen, Regeneron and Celgene.

"I agree that all three would make good buys into weakness here," Cramer said.

However, not all biotech charts were in the green. Gilead bottomed on Feb. 2 and has already rebounded back to $95 from $82. She thinks investors have missed the boat on this one and favored the other three over this one.

"You'll most certainly get some pullbacks in this group for as long as the democratic primary continues and Hillary Clinton, the presumptive nominee, feels the need to protect her left flank by bashing high drug prices," Cramer said.

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