Clearly Hillary Clinton had ballooned up from a bee sting and needed an EpiPen. And that set off a series of events that rocked healthcare stocks, and in particular the Biotech sector Wednesday.
Well that may be the narrative that the media creates. But a look at the chart of the Biotech Index Fund (iShares Nasdaq Biotechnology (NASDAQ:IBB)) may tell a different story.
The chart below shows the last leg of a drop from a July 2015 high and then consolidation in a range for all of 2016. Seven months of back and forth in a range from 240 to about 290.
Then at the start of August the ETF broke above that range. It moved up to 300 and stalled, falling back to the break out range. A small bounce and then back again. Finally a larger bounce and a quick drop Wednesday to the bottom of the break out range.
There are five pieces of information in the chart that must be considered before concluding that the biotech run has ended in a failed break out.
First is the RSI. It is making a lower low and falling. This is not positive but the RSI is still in the bullish range. Let it get below 40 before you give up on Biotechs.
A similar story for the MACD. This momentum indicator is falling but at a shallow rate and it remains positive. Look for a negative value and continued downside if it is truly a failed break out.
The price itself is now at the bottom of the Bollinger Bands®. This will often arrest a move and reverse it. Look for them to continue to open up to the downside if it is a failed breakout.
Also look for the price to fall below the 200 day SMA. Above this it is considered bullish, as it is now.
Finally, look back to the break out range in the yellow bar. A move below this would indicate a price breakout failure.
If this is a true price breakdown then all of these things will happen in short order. This will give confirmation to a breakdown and you can look for a move to the bottom of the channel.
DISCLAIMER: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.