It’s early in the session and biotech (IBB) is testing its reversal breakdown.
This is typical market behavior and for the astute trader, allows a potential low risk opportunity to the short side.
A test may take a few moments or several days. The market itself defines the time-frame.
The daily chart (below) of IBB, shows a wedge pattern that encountered a ‘throw-over’ and reversal back into the trading range.
A wedge typically occurs at the end of a long-term move, whether up or down and throw-over with return, is a classic time-tested sell (or sell short) signal.
We’re past that signal and have yet another; the test of the underside wedge.
The initial measured move target is shown which if met, puts IBB below several key support levels that would then become resistance.
Reported over the past couple of months on this site is that we’re looking for a strategic long-term reversal in biotech.
Of course, there’s no guarantee of that reversal.
Each ‘test’ is an opportunity for price action to fail the set-up. It’s the way of the markets.
As a result, the professional trader or speculator is in a continual state of discomfort.
That’s probably why, years ago in an interview, Robert Prechter Jr. stated that some of the best traders he knew were former Marines.
Short vehicles for IBB (not a recommendation) are BIS (2X inverse) and LABD (3X inverse) which are two well known funds as well as just shorting the ETF directly.
Charts by StockCharts