2:46 p.m., EST

LABD, Force Index Divergence

Sentiment, Volume, Price

Sentiment can’t be seen on the chart. One can guess but it can’t be measured directly.

Sentiment change comes first.

That change in turn, results in a change of volume, i.e. ‘commitment’.

Then, after commitment dissipates, price is next.

That looks like the current situation with biotech and specifically inverse fund, LABD.

In what may be an idiot or genius move (depending on outcome), the short in biotech SPBIO (via LABD) has been maintained throughout the current down thrust; not advice, not a recommendation.

The reasons for that decision have as many layers as the proverbial onion. Not the least of which, is a market break anywhere from 20% to 50% (in our view) can happen at any moment.

‘Never happened before’, one might say.

Oil futures in their entire history have never gone negative before, either.

Bonds, in their entire history have never been shorted by four-standard deviations before, either.

A world-wide coordinated push to euthanize the entire population has never happened before, either.

Margin debt and valuations have never been higher before, either.

Underlying liquidity has never before been removed to the current extent, either.

So, we each have our own reasons.

The firm’s main account (not the Project Stimulus account) has drawn down about – 13%, on the current short position.

A core position has been maintained but small amounts have been removed and added based on price action.

When the anticipated gain, is high hundreds of percent and maybe above 1,000%, the draw down above, looks acceptable considering the (potential) opportunity.

On to the chart:

The daily chart of LABD, shows both net downward price action and thrust energy are dissipating.

Note the ‘Force Index’ scale has been accentuated to better show the divergence.

We’re looking for price to move back higher to test support/resistance areas.

If or when it does, the plan (as has been from the beginning) is to continue to add LABD until volatility makes it prohibitive.

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.