Rising levels of market volatility and subsequent selling pressure have started to take hold of the strongest performing market segments such as biotechnology. The sudden shift in sentiment now has some active traders talking about a long-term shift in trend. In this article, we take a look at several troublesome charts and identify what traders need to see before betting on a move higher. (For related reading, see: The Industry Handbook: Biotechnology.)
iShares Nasdaq Biotechnology ETF
Traders who want to gain exposure to a broad range of biotechnology companies often look to exchange-traded products such as the iShares Nasdaq Biotechnology ETF. In case you aren’t familiar, the IBB fund has total net assets of approximately $8.5 billion and consists of 193 holdings. Taking a look at the chart, you can see that it has been trading within a well-defined uptrend since late 2016. The recent series of closes below the trendline are the first cases of a move below support since its inception and mark a common technical sell signal. The close below the dotted trendline also suggests that its role has reversed from one of support to one of resistance and that it will now likely be used as a guide for determining the placement of sell orders. Based on the proximity to major resistance, the risk/reward is in favor of the bears.
Furthermore, a key factor that traders will be specifically interested in is whether the 50-day moving average (blue line) will cross below the 200-day moving average (red line). In the event of a bearish crossover, also known as the death cross, traders would expect this to mark the beginning of a long-term downtrend. Most technical traders would likely not buy back in until the 50-day moving average crosses back above the 200-day moving average. Based on recent weakness, it looks like this bearish scenario is likely. (For more, see: Biotech Stocks Face a Steep Drop.)
Bearish patterns on key biotech charts suggest that this sector could be poised to make a move lower over the coming weeks. …read more
Read more here: 3 Charts That Suggest Biotech Stocks Are Headed Lower
Category: IBB, ALXN, BMRN