Price action pushed past yesterday’s analysis to fill a price gap from February.
What’s next is the question.
The answer may be in the pre-market, where AMGN is down -1.25% and inverse fund LABD is up +4.7%
If biotech IBB pushes below yesterday’s low of 154.45, we’ve got tentative confirmation the reversal (which tested its highs yesterday) is going to continue.
We remain short this sector via LABD (not advice, not a recommendation) with a hard stop @ 17.80
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Biotech has reversed.
Inverse LABD, higher in pre-market, approx: +5%
There are essentially two scenarios:
First, IBB is retracing, gathering fuel for new highs
Second, IBB has reversed and is heading much lower
Target levels to be identified and reviewed in a subsequent update.
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Biotech pulls back 50% and the bulls look tired.
Update 12:23 p.m. EST, noted below in red
The 15-minute chart of inverse fund LABD shows how successive moves lower (higher for IBB) have covered less distance.
It’s very early in the session and price action at this moment is fighting it out at LABD 18.00, area.
We’ve maintained our short position (not advice, not a recommendation) but have the sense, if there’s not a reversal at this point, IBB could be working up for new all time highs.
This is the danger point.
Current LABD low for the early session is 17.91 … a good place for a stop.
LABD pushed down to 17.80, early in the session before reversing.
It has just passed 18.28, a new hourly high. AMGN to be covered later, at important inflection point (down).
Short position via LABD maintained (not advice, not a recommendation), hard stop at 17.80
With markets at record prices, Fed announcement tomorrow, no more stimulus (likely), forbearance to end, possibility of the ‘speck’ blowing wide open, one gets the sense this may be an important reversal.
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.
The canary in the coal mine could be High Yield, HYG
Since early last year, this site has been discussing growing parallels of the current market environment to that of August 1987.
Just recently, ZeroHedge began to pick up on the idea as well.
What’s becoming very obvious when looking at 1987, we’re in something much larger; possibly an order of magnitude (or two) larger.
Here’s the latest from Jeramiah Babe. Important time-stamps below:
2:15, Crypto (try it when the power goes out)
3:00, Inflation
3:30, Agricultural prices
3:40, Lumber prices
4:10, Middle Class destruction
5:00, Last longer than Great Depression
7:30, Dramatic shift (never to be the same)
10:00, “We’re in 2021 now. Anything is possible“
A quick review of longer term momentum indicators on the major indices (or ETFs), below:
Technology based indices all have significant downside momentum.
The financial press may have pawned this off as ‘rotation’. Of course, that remains to be seen.
Our view, high yield tells us something much larger than a sector rotation’s occurring.
It’s possible, the most debt (interest rate) sensitive indices are reversing first which could be a sustained, long term reversal.
The HYG weekly chart pattern is similar to the prior reversal (magenta ovals). This time however, MACD has spent over nine-months in a divergence and has crossed to the downside.
There could be a new high … low probability but it could happen (after all, it’s at support). If it does, weekly MACD may post an even larger divergence.
In response to the HYG reversal, we’re watching (and are short) the biotech sector, IBB (not advice, not a recommendation)
Of the three noted above with negative momentum, IBB is the weakest. Last Friday’s action has tentatively confirmed the resistance areas and trading channel reviewed in this update.
Friday’s IBB lower action was nearly imperceptible but it was there. Major reversals can happen this way … a little at first.
Wyckoff said it in 1910, ‘It’s as if the weight of a feather can determine the next direction’.
We’ll see if there’s follow-through to the downside on Monday.
Stay Tuned
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On a closing basis, biotech’s hit three areas of resistance.
We’ll put all the lines up at one time (chart above) and then break it down.
First, there’s the underside of the trend break that’s already been discussed in prior updates.
Second, the resistance formed by the underside of the head and shoulders pattern identified in a prior update as well.
Last, we could have a trading channel in effect. If so, price action contacted and closed at the right side in yesterday’s session.
The following charts get a closer look at two resistance areas:
Using a ‘reverse trendline’ technique outlined by Weis in his DVD, we take contact on the left side and move it to the right.
The chart below shows the H&S resistance area (underside) contact:
Putting all lines together gets us the chart at the top of this post.
Long term MACD indicators are down; both monthly and weekly. Momentum is to the downside.
Probabilities favor a reversal
The potential downside is enormous. The markets are extended the most in history. Margin debt the most in history.
We’ve got kids running around with trading apps designed to make it look like a game. It’s no different from the Shoe Shine Boy at the steps of Wall St., giving out tips.
Positioning:
We’re short biotech via LABD (not advice, not a recommendation).
The highly leveraged inverse ETF, performs best when the direction of IBB is down in a steady and decisive move.
Otherwise as we saw near the close yesterday, IBB could be reversing to the downside while LABD is still eroding lower in value.
Inverse fund BIS does much better in this area but is not nearly as liquid. That makes pre and post market trades impossible.
We’ll be looking for IBB to post a new daily low as confirmation a reversal is underway.
Stay Tuned
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IBB price action pushed through our stops and contacted the underside trend line. This morning’s update indicated that possibility.
In response, LABD position has been re-opened.
IBB price action has been hovering about this level for about two hours. It may have stalled; indicating potential reversal.
Obviously, this type of positioning is not for everyone. Understandable.
However, the markets themselves are dictating the appropriate action.
Positioning (not advice, not a recommendation)
LABD, Entry 1, @ 18.94
LABD Entry 2 @ 19.23.
Stop: A bit below the session low at approx: 18.60 – 18.90
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Biotech ETF, IBB looks ready to complete its breakout test and reverse to much lower levels.
There’s a lot going on in this sector.
At this juncture, IBB appears to be the overall downside leader.
The link to this video is the first of its kind. There’ll be more to follow.
Judging from the comments section of ZeroHedge, looks like everyone’s pretty much awake at this point.
Just in case, here are 25-quesitons that can be posed to those still asleep.
Pay special attention to Question No. 11. & No. 12.
At some point you would think it’s all going to bust wide open.
Moving on to the chart:
IBB’s been in a terminating wedge for over a year. There was a ‘throw-over’ in February. Next, was downside penetration of the lower boundary. Now, we’re in a test.
That test can still go higher to contact the boundary underside. However, as posted yesterday, we’re already positioned short (not advice, not a recommendation) at the 38.2%, contact and rejection.
From a fundamental perspective, all the good news is out. Probably the last of any ‘stimulus’ will be figuratively mailed out by the end of the month.
Bonds look to be forming a bottom and the dollar as well.
Even so, the higher interest rates are already having an effect as home buyers are backing off. Lumber prices remain at insane levels.
Positioning:
Last session, the firm’s accounts went short biotech. Pre-market action in LABD shows a slightly lower open (higher for IBB).
The stops for both BIS and LABD have been provided in the last update. Be aware, the stop is loosely based on the tracking fund IBB.
If IBB posts a high above 154.60, its likely to attempt a 50% retrace.
One caveat:
There’s probably an accumulation of short stops (like ours) at the 154.60, high.
If there are enough, the market will automatically go one, or two ticks higher (154.62), to clear them out.
We’ll watch for that and adjust our stops accordingly. If this happens, it’s likely to be within the first 90-minutes of trade.
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In price action very similar to AMT before its reversal, IBB looks ready to move decisively lower. Early session hit 38.2% retrace and now, test action (higher) looks weak.
Markets are fractal. Price action repeats itself at various time-frames.
Expectation is that IBB will continue lower from here just as was the case with AMT.
The difference is, since we’re dealing with an hourly time frame instead of daily, price action is faster.
All accounts have been cleared of positions except for being short biotech.
Positions are as follows (not advice, not a recommendation):
LABD: Entry, 19.976, Stop 19.52
BIS: Entry 22.32, Stop 21.75
There are a number of problems for biotech hovering the background that could blow the lid off the ‘planned event’ of the past year.
More information to be provided in a subsequent update
“Set the stop and walk away”.
That was a phrase from the late David Weis, used during his training session video (link here).
That’s what we’re gong to do.
Biotech (IBB) is nearing support and it was thought the overnight would result in an obvious gap-down open, exit signal.
However, with just about a half-hour to go before the regular session, markets maintained their positions overnight keeping the door open for continued decline or counter-trend action.
All markets, the S&P, Dow, Nasdaq, (and biotech) are pivoting lower from insane valuations. We could be at the very beginning stages of a sustained deflationary move.
One example of how such moves behave, was the oil market in July of 2014. The tracking fund USO, had nine successive down months (declining over 60%), before a significant retrace.
With that in mind, we’re setting the LABD stop at the prior session low of 21.80 (not advice, not a recommendation).
With an LABD entry point at 18.08, being stopped out at 21.80, would yield a gain around 21%.
So, we’ll leave it there and move on to other opportunities.
The weekly has IBB, nearing support around 140 – 142 (dashed line). We can expect price action to hesitate as (or if) it encounters those levels.
Stay Tuned
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Markets might continue their decline in overnight and pre-market.
If pre-market or early regular session has IBB trading near its target level, we’ll plan on exiting (LABD) in response; not advice, not a recommendation..
Every other active trader sees the H&S at this point and is probably waiting to close out (their shorts) at or near the bottom.
If so, it may result in buoyancy and the trade will start to degrade; exit is warranted under those conditions.
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The Danger Point® 