Last May (2016) I wrote an article here on IBankCoin about how the Semi Conductor (a major risk on sector) could lead the market out of the muck and off to all time highs. That trade has worked out well….but now that this sector is fast approaching it’s technical target (see chart below), the question becomes, what’s next? Where will money flow?
Could it be Biotech? I think the case can be made because it looks very similar to the Semi’s way back when.
(Bullish Range Target on $SMH is 76.73 so expect some profit taking soon)
The Biotech sector both IBB and XBI have been trapped in a very nasty trading range for the better part of a year now as many other sectors approach or make all time highs. However, there are many similarities that can be drawn here as the Semi’s approach a technical target and the Bio’s coil above major moving averages. We could be coiling up for a potential move higher and the stars are aligned. Here is my thought process.
Examining the risk is always where I start….and to me the real risk is very clear on the weekly chart. While it is currently holding above the upward sloping 200 Week moving average, it continues to make lower highs and could be forming a topping pattern. However, until we see a confirmed break of that 200 week area, I’m going to give the sector the benefit of the doubt on the long side and see this area as very well defined risk. That 200 Week is an area that has continued to hold up despite this correction so it’s going to take a very firm break of that to really roll this sector over. This right now looks like more of a 2 year correction than a major top as we take everything into account, but we’ll be watching that moving average closely to see if it continues to support as it has so far. (See chart below)
Based on that weekly, I am holding a bullish to neutral bias at least until we can see evidence of a break.
As I reduce the time frame to the daily chart, we can observe that it’s currently also holding above a rising 200 period moving average (much like the weekly above).
Additionally, it could be trying to form a bullish reversal pattern as it coils in the low to mid 60s. This has my attention.
As a final data point, I like to look within the sector for some cleaner reads, so here are a few names that I’ll be watching.
$BLUE -> Kind of a double bottom, with a cup/handle. Would like to see this one hold above the range box of ~$65 for the lowest risk. Looking for it to fill the gap up at 82 as a first point of reference.
$AQXP -> Interesting setup after a year and a half of consolidation. As long as it’s above 15 it’s fine. 21.50 would is my first target
RTRX -> A nice coil right at the 200 DMA. Watching to see if this one can break above the immediate term down trend line and hold 18.
Not necessarily Biotech, but healthcare none the less. Holding that Rising 200 Day for dear life with a bullish reversal pattern. Worth having on the watchlist for a break out of this choppy mess it is currently in.
The bottom line for me is this.
1) A major risk on sector (Semi Conductors) is approaching a major technical target, with momentum drying up suggesting the possibility of some rotation.
2) Biotech, another risk on sector that may get some rotation is showing a few signs that it wants to make a move.
With the information and thoughts above, I’m leaning to the long side for now and have a watchlist of names to play in case it moves in a favorable direction.
Something worth watching in the days and weeks ahead.
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