In the shadow of surging energy prices, inflation, and the after-effects of two major hurricanes, the strength in the biotech sector (actually, it's an industry) has largely gone unnoticed. However, biotech has been one of the strongest groups over the last few months. And based on the chart we see now, there could be plenty more of that upside potential left in store.

Let's start at the beginning. We actually went bullish on biotech in July. At the time, the AMEX Biotech Index (BTK) had just passed a major resistance level, and was trading at 573. We set a target of 640 for the index, which was hit in early September, for an 11.7 percent gain. Now, even though we're still hearing the echoes of a major move, we think this index has the right stuff to do it again.

The signals here are pretty straight-forward. What caught our eye on Monday was the surge to yet another 52-week high. The AMEX Biotech Index had been held under 655 a couple of times in September, so it looked like that might be the end of the road for the bulls. But, we've already seen trades as high as 656.72 this week, which constitutes a bullish breakout. That, however, isn't the only reason we like this chart.

Under normal circumstances, we'd be hesitant to buy into a trend after such a big runup, fearing a potential pullback. In the case of this chart, though, that dip is very unlikely. Since July, we've seen BTK form short-term bases at 600 and 626. And, each of those bases guided the chart directly into the 50 day moving average, which resulted in a huge recovery move.....the second of which was just a couple of days ago. The point is, the index isn't as over-extended as it was in July, and it's certainly not 'overbought'. Rather, this bounce off of the 50 day line could be just the beginning of a big rally, as it was in June.

AMEX Biotechnology Index (BTK) - Daily

We'll set a target at 721 for the AMEX Biotechnology Index. The closing stop on this bullish bias will be at the 50 day line. It's been outstanding support for months now, and was the catalyst for the big surges in August and September. It's currently at 627, but would need to be adjusted every day.

Price Headley is the founder and chief analyst of BigTrends.com.