Breaks Channel … Heads For Potential Up-Thrust

The market is always right.

If it’s not behaving as expected, then it’s obviously doing something else.

In the case of biotech XBI, that something else, may be working its way to the next set-up.

Strategy First

Until price action proves otherwise, the overall long term reversal assessment of the sector has not changed (not advice, not a recommendation).

We’ve had a potential long-term up-thrust (reversal) that’s been covered here, and here.

That second link contains a 3-Day chart analysis.

Looking at the current price action and having it dictate what chart to use, we’ll switch to a 2-Day, which shows the potential more clearly.

Biotech XBI, 2-Day

The sector has failed to break below support in the 92 – 93, area. Instead, it has decided to bounce in what looks to be a possible minor spring-to-up-thrust.

We can see there’ve been two ‘hits’ on the upper resistance line. One, immediately after the up-thrust breakdown and one later … 4-bars later.

These hits essentially confirm the area, in effect, setting it up for potential penetration.

One has to think about where the stops are located.

If I was short this sector (I have been, but not currently), where would I place my stop?

Naturally, I’d put it right above the resistance (blue) line, exactly where everyone else has put theirs 🙂

Years ago, Martha Stokes wrote an update on why everybody gets stopped out of their trades, paraphrasing from this link:

‘The Market Makers don’t know you are there; they’re not interested in your tiny little stop order.

If your order does get taken out, it’s because too many small traders put their stops at the same location.

There’s an order imbalance. The market’s response is essentially automatic … take out the stops.’

With that, let’s see what happens next.

There’s no guarantee XBI, will penetrate the resistance area but if it does, we won’t be surprised.

Stay Tuned

Charts by StockCharts

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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