As the month of October begins and broader markets sold off, biotech stocks are still largely negative and/ or flat for the year. As seen in the LABU vs. LABD chart below, the spread between the two swaps is quite massive. Market headlines from high prescription drug prices and lawsuits regarding the opioid epidemic have plagued some of the IBB’s largest holdings; which have held biotech ETF’s down while the S&P 500 reached all time highs. Similar historic price patterns have shown to be signs of significant trend reversal as I previously analyzed here.
- Biotech is a known high volatility trading environment;
- More Investors will become “Traders” with new $0 trading fee platforms from Schwab and TD Ameritrade.
- Once people begin trading stocks, they will find that high volatility is how the “big” day-trade/ swing trading money is made.
- New Med-tech and Biotechnology therapies (i.e. gene therapies, NASH/ NAFLD, I-O therapies, etc.) are ripening and getting closer to approval.
- There are currently over 240 biotechnology companies with Gene therapy IP
- IP has been growing with RMAT and Breakthrough Designations due to unmet need of new novel treatment
- As Biotech rolls into year-end, lower interest rates will propel company growth models which I believe will help drive buy outs.
Press play on the interactive chart to watch the instant replay on the Biotech bull!
LABU: S&P Biotech Bull 3x
LABU Technical Analysis:
Swing trade Risk/ Reward: 1.25 : 3
- Bullish Harmonic Gartley pattern while being close to 52-week low constitutes a good reason for bounce.
- 1-year Gartley pattern should move LABU stock price back up to around $40 level (resistance) where we will be watching for a potential breakout
- CCI measured “oversold” with the end of September pullback, CCI-slope is now trending higher.
- Double bottom (data points are from Christmas 2018 and Oct. 1, 2019)
- Intra-day bullish RSI divergence, Daily/ Weekly RSI trending higher.
- the MS Signal recently flipped green (as of 10/1/2019) and is still indicating a nice buying opportunity at current levels.
- Three-drives pattern bouncing toward resistance concurrent with double bottom and Gartley pattern.
- Look for the support level (marked ‘X’) to hold.
- Fibonacci confluence indicates same money accumulating/ distributing.
XBI: S&P Biotech ETF
XBI Technical Analysis
Swing trade Risk/ Reward: 1 : 3
- Recent bounce at $72.90 indicating higher-lows, if held, this is a great sign for a Biotech ETF bounce or consolidation.
- Harmonic 707 pattern; Also reference point “X” has Fibonacci confluence with 786 retracement from previous high on the 1-year chart (~July 2018).
- Potential cup and handle pattern leading up to big data releases mid October.
- MS CCI just V-lined off “oversold” levels and started signaling bounce.
- MS Signal showing showing strength at $72.90 support level;
- Close above $85 could signal Breakout + test of $100. Set alerts at $84.24.
Biotech ETF’s have not fully recovered since selling off, June 2018. As they lay near 52-week lows broader markets are still up for the year. I believe Biotech’s current setups look oversold and beaten down. A positive catalysts will lead to strong momentum and investors sidelined will be looking for any signs of life or market rotation, trying to flee broader market volatility. Trading Biotech has helped the MS portfolio stay green with massive return on investment while the rest of the market sold off in trade war fears. It is just a matter of time before big funds see the optimism in Biotech cyclical’s, especially with upcoming data and the current technical climate.
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Disclosure: I do not own LABU, LABD, XBI, or IBB. I may buy or sell within the next 48 hours. This is not a recommendation to buy or sell. Please do your homework before investing.
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