Positioning short in the biotech sector (IBB) has not been popular or easy.

Mass hysteria, world-wide hysteria has completely overtaken biotech in a (potentially futile) search and reward for ‘the cure’.  More on that farther down.

Even before the current stampede, biotech was analyzed by David Stockman and his staff, way back in 2015.  He surmised the entire entourage was nothing more than ‘$2-trillion dollars of bottled air’.

So, if that was then, what about now? 

Now, there’s no ‘price discovery’ of any kind in the equity markets.

There hasn’t been any real discovery for decades … going all the way back to the aborted Head & Shoulders pattern from 1998 – 2002.

Remember that?  A floor was mysteriously put in right at the neckline breakdown, (October 2002) so the market could not go through a much needed washout.

That was potentially the start of major manipulation to ever higher levels and ever bigger bubbles.

So, here we are.  As of this post, after two and a half months of topping action, IBB is in a decisive breakdown.  If it closes at current levels (IBB, 133.57) or below, it not only has downside follow-through from last week’s reversal, it will post a monthly reversal bar as well.

What about ‘the cure’?  Won’t that provide massive profits for the corporations implementing ‘the plan’?

The truth is, it’s getting harder to suppress the truth. 

At this juncture, YouTube, Facebook, Bit Chute and others are playing whack-a-mole with the fact that a resolution to the current situation is not only simple, it’s cheap; Exactly the opposite of the ‘desired’ outcome.

On top of that, one has to consider enough of the public has been fleeced and enough money has been made to the upside, that it’s time to position for downside action.

If we’re to get a sustained reversal, expect the usual suspects to appear; namely, news reports, analysis and recommendations that foist reasons why profits may not be as good as expected.

This is the way the game is played. 

Anyone analyzing P/E ratios, sales numbers or any other fundamental as a ‘reason’ for price action, is living in an alternate universe.

Only time will tell if we’re at a major inflection to the downside.  In the meantime the firm sponsoring this site is heavily short the sector via BIS (not a recommendation).

Note:  The current short position can be exited at any time without update or notice.

Inverse funds are tricky. They have a built in downside (price) bias resulting from expenses maintaining the fund.  They literally can blow-up at any time during an adverse move as was seen with inverse funds DUST and JDST (late March ’20).

These vehicles are absolutely not suited for the ‘average investor’ and even the professional can get impaled on a blow-up every now and then.

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.

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

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.