Breaking Down Biotech

Was last week the correction?

Is it over?

To provide perspective on that question, we need to go back in time.

First, to Dr. Elder’s “Entries & Exits“, published in 2006.

Then, way back to “Reminiscences“, published in 1923.

As a reminder, we’re looking at biotech (SPBIO) from the perspective of being short the market.

The primary vehicle for that short, is highly leveraged inverse fund, LABD.

The last update gave a hint at the desired timeframe.

If the markets are in the process of reversing, ultimately going to the long awaited (since 2009), final draw-down (i.e. crash), then a likely bottom would occur where they (almost) always occur; during the third week of October.

In a nutshell, that’s the time frame.

Conversely, price action is the final arbiter. If biotech winds up effectively saying ‘not now’, well then, it has the final say.

Back to ‘Entries & Exits’.

One of the traders highlighted in the book (in addition to Weis), was William Doane; former Head Technician for Fidelity.

His timeframe is much longer than the typical market participant. He, like Weis are looking at monthly, quarterly and yearly charts.

That fact in and of itself, provides an edge.

One of the main take-aways from his section was (paraphrasing):

‘The first correction is the hardest. If you can get through that, it’s typically smooth sailing from then on’.

The biotech short via LABD (not advice, not a recommendation) may be at that point now. Painful to watch but necessary.

Next, we go to ‘Reminiscences’.

Those who have read the book, know all about ‘Turkey’; Mr. Partridge.

As the book states, he was much older than the rest who frequented the brokerage. Also, he did not appear to be that active in the markets (thus minimizing his transactions). He was interested in the big move.

The admonition from Partridge, was: ‘Don’t lose your position’. Don’t exit out, expecting a pull-back … that ultimately never comes.

So, we have two examples; three if you include Weis that begin from the very long time-frames and work inward.

Now, on to the market:

The long term, Quarterly analysis has already been done; linked here.

The chart in the link, is from last quarter and since then, (during this quarter), we’ve made new lows.

On the fundamental side, evidence is building by the day on what the ‘speck’ protection is all about.

If you’re really interested in the big picture, here’s a link to a five-plus hour presentation that spells it all out.

Here’s J. P. Sears’ take on the same thing.

SPBIO, the daily chart:

The SPBIO, has been inverted and annotated

We’re currently between support and resistance.

Momentum indicators MACD, on the Monthly and Weekly remain in a downtrend.

Using IBB, as the proxy for Quarterly momentum (not enough data for SPBIO), the indicator is flat.

Momentum’s in favor of (maintaining) a short position; not advice, not a recommendation.

The monthly chart of SPBIO (inverted), has price action coming back to former resistance (now support). This is normal market behavior.

Recall, that on the downside, if there is some kind of ‘event’, markets can slice through apparent support levels with ease.

With that in mind, on the inverted chart above, the next major ‘resistance’ level may or may not be of consequence.


Each trading week is important.

However, next week will likely a pivotal one; providing more information on whether to maintain short or exit and stand aside; not advice, not a recommendation.

Stay Tuned

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.
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