The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday.
On May 30th, 2014, in Chicago, Illinois, the American Society of Clinical Oncology (ASCO) will have its annual and widely-watched meeting. Given the steep, multi-year rally we have seen heretofore in the biotechnology stocks, sentiment is understandably quite bullish on the sector headed into the meeting. Indeed, many individual firms in the biotech sector are making bold progress in the medical space.
With this in mind, it is crucial to draw a distinction between promising, long-term progress in the medical field for the benefit of humanity versus the stock market price action of the sector.It is also worth remembering that the market has demonstrated time and time again over the past one hundred years or so that it is capable of looking ahead several months, if not quarters and years, and “pricing in” good news.
First and foremost, the amount of time between now and ASCO is, in some respects, an eternity, in terms of what the market is capable of doing over that given period.
Beyond that, these Strategy Sessions have been focusing on the uniquely extended nature of the biotech sector, at-large, in recent weeks. The suggested strategy was to look for opportunistic short trades for the sector as a whole, in addition to the large cap, liquid biotech stocks comprising a heavy portion of the sector ETF.
Updating the daily chart for the main biotech sector ETF, IBB, note the sheer size of the sell volume bars dating back several months. While that volume pattern, in and of itself, is not sufficient evidence to call a major top to the sector’s exhilarating bull run, it ought to give buyers pause when we consider the sector’s underperformance to the broad market last week.
Moreover, the sector ETF has not so much as tested its 200-day simple moving average in roughly the past sixteen months. Hence, the odds of a true price correction materializing–with each surge in sell volume as price has become abnormally-extended–increases dramatically.
BIS is the ultra-short sector ETF for the biotech sector. Aggressive traders may seek to play the bear side with a move under $259 on the IBB ETF next week, with a stop-loss if the ETF takes out recent highs of $275.40 on a closing basis.
There are two more points about the IBB ETF worth considering.
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