Yesterday, Jennifer asked is Valeant Pharmaceuticals the proverbial canary in the coal mine for the pharma industry? She came to the conclusion that the outlook for pharmaceutical stocks is certainly not as optimistic as it was six months ago. If the pharma’s outlook is less optimistic than biotech’s outlook is downright pessimistic.

You may be asking haven’t US biotech stocks already been under a lot of pressure? Absolutely. The average US biotech stock is down a substantial 23.8% over the past year. But before the contrarians out there start shuffling through the biotech bargain bin, remember that the average biotech stock is still 229% higher than it was four years ago (four stocks were excluded from this calculation due to lack of historic prices). So even though the one year returns imply that maybe the correction has overshot, when we look at these stocks from a four year perspective we see that most stocks are in the process of putting in major tops that could be the first sign that this is a multi-year drawdown period for biotech stocks.

Let’s take a look at the five largest holdings of the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) as they account for 44.1% of the total ETF.

Gilead Sciences, Inc. (NASDAQ:GILD) has been in a topping formation since 2014 and looks to have put in a significant amount of bearish resistance. That is strike one. Strike two is that it has now broken the bullish high-performance support line for the first time in four years. Strike three will be if (when) support gives way at line D. F would then be the closest area of support.

Celgene Corporation (NASDAQ:CELG) has been in a topping formation since late 2014 and looks to have put in a significant amount of overhead bearish resistance. That is strike one. Strike two is that it has now broken the bullish high-performance support line for the first time (in a substantial way) in over four years. Strike three will be if (when) support gives way at line D. If D does give way, then the blue bullish support line may provide momentary support but we would expect Celgene to eventually crash through that as well.

Amgen, Inc. (NASDAQ:AMGN) has the best looking chart of these five stocks by far. Bullish support has still held. However, similar to the other charts, a good amount of overhead resistance is now in place. Amgen currently has one strike against it. However, if D gives way than Amgen will have strike two and three happen simultaneously as support from D and from the bullish support line will both have failed.

Biogen Inc (NASDAQ:BIIB) has two strikes against it. It has broken the bullish support line that had been in place since 2012 and has created a significant line of overhead resistance. If G gives way than we are probably looking at a 25-50% relative underperformance period ahead for Biogen.

Regeneron Pharmaceuticals Inc (NASDAQ:REGN) probably has the worst looking chart of these five stocks. We think it is safe to say that Regeneron has just struck out and investors should get out of the batter’s box. Strike one was putting in a lot of overhead resistance since early 2015. Strike two was falling through the bullish support line that had been in place since 2012. And strike three is that there doesn’t seem to be any meaningful support until perhaps we get to H. This implies that there is about 30% relative performance downside, at a minimum, for Regeneron. The current situation Regeneron finds itself is the worst case scenario for the other four stocks we have mentioned.

The best case scenario for US biotech stocks is that support holds and these stocks end up staying in a prolong trading range. Stocks work off previous periods of excess either through time or price. Regeneron looks like it is already working off its incredible performance through price. We will see whether Regeneron is the model for other biotech stock performance in the near future or if it is the anomaly of the group.