As Todd Harrison posted earlier on the Buzz & Banter [subcription required], the iShares Nasdaq Biotech Index ETF (NASDAQ:IBB) broke support at $260. If you pull the IBB chart up intraday, well, ugly doesn't quite describe it. It shows textbook lower highs and lower lows.
What's interesting is the SPDR S&P Biotech ETF (NYSEARCA:XBI), which is the more balanced ETF tracking the Nasdaq Biotech Index, is flat (or nearly so as I write this around noon, EDT). So, it's the big caps taking most of the hurt in biotech land. This is reflected on my screens with the better-known names down and the lesser-known names up or flat.
I've written in the past that this XBI and IBB divergence is generally bullish for the sector, and I'm not parting with that view now. However, I don't just use my eyes on charts. I use my ears, too. My ears tell me biotech isn't the "hot thing" at the moment, and we're getting rotation away from the sector. That hasn't hit the smaller names as it looks like most of the rotation is coming from fast money "renters" and not "owners" who looked to the ETFs and the very biggest biotech names. That can change, and darn quickly, but that's how it looks the moment that I write this.
For full disclosure, I recently added some ProShares Ultrashort NASDAQ Biotech (NASDAQ:BIS) to our portfolio at Alpine Bioventures (a hedge fund) to hedge the sector rotation. This ETF isn't for everyone as it is 2x levered to the downside. When the IBB is down 1%, the BIS is designed to be up 2%. Conversely, when the IBB is up 1%, the BIS is down 2%. I chose the BIS instead of using options for two reasons:
1. I think there will be a break in the biotech indexes that could be meaningful.
2. I'm not certain when that break is coming in relation to the March and April expirations.
I'm just sharing my thought process here in hopes that it helps.
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