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Jeff Cooper: Is Biotech Going Bust?


Biotech has been the speculative driver in this market. Is That About to Change?

Biotech has been the speculative driver in this market and many names exploded higher on Thursday.

These include Receptos (RCPT), Medivation (MDVN), Bluebird (BLUE), and Incyte (INCY) to mention a few.

IBB broke out of a short-term bull flag on its dailies and looks poised to extend.

However, a look at the weeklies suggest it may be vulnerable:

The last time IBB closed above its upper weekly Bollinger Band after a long rally was in January 2014. A 20% correction followed.

Note the gap up to the early 2014 high that preceded the top.

When IBB offset the gap, accelerated downside momentum resulted.

We should be alert for a fractal of this pattern if IBB offsets yesterday's gap.

In other words, if IBB quickly fills yesterday's gap and continues to trade lower, it is probably a good warning sign.

Let's take a look at IBB time and price vibrations.

From a low of 59 in 2008, six revs (of 360 degrees) up is 386.

Note how that ties to the 275 peak in early 2014 that preceded the 20% correction.

The last big swing low at 207/208 ties to March 6.

Note the consolidation at 338ish which is 2 revs up from 207ish.

Click to enlarge

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Conclusion. IBB may be starting a new leg up but a move back below 338 looks near term bearish.

345 is one rev up from the 275 and should elicit some digestion.

A reversal in IBB back below Thursday's gap and back below the recent little bull flag should be a harbinger of a correction in the popular indices.

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No positions in stocks mentioned.

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