Jeff Cooper: Is Biotech Going Bust?
Biotech has been the speculative driver in this market. Is That About to Change?
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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