Biotech Breaking Down

10:57 a.m., EST

SPBIO, Biotech Verifies Channel

Inverse LABD, Moving Higher

Biotech (IBB, MRNA, SPBIO): Analysis

Looking over the updates of the past few weeks, you can see how the LABD channel (above) was formed.

The trend has repeated with successive moves higher and the right side channel line moved as a result of price action.

At this point, we may be there.

If LABD closes the day at its current location or higher, it’s a good sign of channel confirmation.

In addition, we have Moderna (MRNA) in the process of penetrating the trendline shown in yesterday’s update. If price action continues lower (as it’s doing in the early session), it could be on track to post a weekly reversal.

Separately, the IBB (ETF) index is already posting a weekly reversal. From a momentum standpoint, the new weekly high of IBB, has put that index in a potential bearish (MACD) divergence provided it closes lower from here for the week.

Positioning:

The bearish case has been building even back to David Stockman’s assessment of ‘2-Trillion Dollars of Bottled Air’, during the summer of 2015.

However, Stockman does not trade. So, to figure out if ‘this is it’, is not in his repertoire.

With current events as they are, one can intuitively conclude the fundamentals have not improved for the sector.

The backdrop is there for significant downside.

With that in mind my firm remains positioned max short (not advice, not a recommendation).

Any selling in LABD that’s occurred over the past month or so, was to adjust account(s) for maintenance (margin) requirements.

Once the index was finished with its adverse (SPBIO, higher, LABD lower) moves, we’re right back to establishing a full position.

This type of action has been going on for months.

It’s tedious and not exciting; exactly the opposite of what a typical YouTube viewer is looking for.

As a corollary, there’s no artificial (and profit limiting) requirement to show ‘Monthly’, Quarterly’ or whatever gains, to retail customers.

The financial press takes care of the retail side.

Some (very few) actually escape; finding themselves on sites like Van Metre’s, Weis’, and this one.

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.

The Set-Up

Summary:

Technical conditions have come together in biotech (SPBIO), indicating we’re at the danger point.

At this juncture, risk is least for short positioning.

Price action can go either way. However, the cost of being wrong (stop being hit) has been minimized.

Supporting Data:

This past week saw the biotech index retrace to a Fibonacci 23.6%, level and stall. Yesterday’s action was in a narrow range; potentially testing for more upside.

That (upside) didn’t happen.

Such a shallow retrace is rare. More typical is at least a 38.2%, level being tested before price reverses and heads lower.

If the index heads lower from here, that shallow retrace points to significant (major) weakness.

The daily of SPBIO is below with the 23.6% shown:

We’re going the compress the time-scale and invert the chart. Note the Fibonacci time correlation between price spikes:

Taking those 34-days and having the market itself define what’s important, it’s possible we have a trading channel as shown:

Prior updates have also shown SPBIO got into up-thrust (reversal) condition as it tested the retrace level.

Yesterday’s action (narrow range, no new daily high) was consistent with that assessment.

Additional Fundamentals:

A significant, immense, fundamental bearish case has already been built for biotech.

As Reiner Fuellmich put it, he’s working to bring ‘crimes against humanity’ lawsuits to those who are complicit in the largest scam and potential genocide in world history.

If the numbers can be believed (even if they’re wrong, they’re huge) nearly 1-Billion people have been injected.

Of course, not everyone in the sector is complicit.

Even so, years ago (July 2015) when biotech reached a major high, David Stockman analyzed the sector.

He concluded the fundamentals were so bad, the entire sector could be summed up as ‘two trillion dollars of bottled air’.

We’ll have to figure not much has changed and/or, it’s probably worse.

Meanwhile, the insanity keeps piling up.

This just out a couple of days ago; a story about mixing the speck injections together. Just like you would do with a cake recipe. What could go wrong … unless it’s planned that way.

Conclusion:

We’ll know pretty quickly next week if we’re at the inflection point. The expectation is for lower action in SPBIO.

The LABD (3X inverse SPBIO) stop is tight and in the market. There have been no position changes since the last ‘project update‘ (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.