A steady sustained decline of tracking index SPBIO, is the best environment for highly leveraged (3X-inverse) fund LABD.
Biotech continues to be one of, if not the downside leader.
There has been no major break lower (LABD higher) that would draw attention to the index. That’s good in a way; it allows one to open positions (not advice, not a recommendation) while price action is relatively quiet.
It’s still a while before the close. LABD could even finish slightly lower and remain in the trading channel shown above.
Self-Employment Is Key:
It’s stories like this that highlight one way (if not the only way) to avoid being sucked into the first round of injections is to generate your own income.
It seems that everyone jumps on the bandwagon and tells us ‘how bad it is’ … very few do the work and show what can be done about the current reality.
From a financial market perspective, shorting biotech looks like the highest probability set-up (not advice not a recommendation) until such time that price action says ‘get out’.
So, that’s this site’s approach to generating income and being separate from any large (mandate enforcing) corporation.
‘Knock and Talk’
One last note on taking action. This is an example; offering a perspective on what can be done if there is a knock at the door.
Narrow your focus of ‘influencers’ to those who actually provide a service. Reduce or eliminate exposure to those who continue to peddle the fear without any kind of plan.
This update demonstrates how those tenets are being implemented.
In Livermore’s fictional autobiography (Reminiscences), he muddled around for years before identifying his niche.
‘What’s going to (or what’s likely to) happen in a big way.’
That insight has been used to identify the biotech sector as ripe for complete (and well deserved) implosion; more so than any other sector in the market.
For many months, the case continues to build for collapse.
Here’s just one more brick in the wall; providing even more support for implosion.
Wyckoff committed his entire professional life to decoding the market and its moves.
He is (as far as available data shows) the father of technical analysis.
Terms like ‘support’, ‘resistance’, ‘accumulation’, ‘distribution’, did not exist before is treatise, “Studies In Tape Reading”, published in 1910.
His bottom line:
Price is moved by a force of its own; having nothing to do (in a causal way) with fundamentals:
‘What is the market saying about itself.’
The biotech sector SPBIO, is tag-teaming with gold miners GDX (and GDXJ), for downside leadership.
SPBIO finished the week down -27.5%, from its February 9th (2021) high; running a close second to GDX, which finished the week down – 27.6%, from its August 5th (2020) high.
From a speed-of-decline standpoint, biotech’s in the lead.
Loeb’s brutal admonition was: ‘The naïve, lazy, mediocre, ignorant and the incompetent “diversify”.
His follow-on corollary was: ‘Real market opportunities are few. If one is discovered, it must be used to its maximum extent.’
Loeb’s assessment of those in the market, is not much different from Wyckoff’s:
“The average man never makes a success of Tape Reading.
Right you are! The average man seldom makes a success of anything.” (emphasis is Wyckoff’s).
From the above list, ignorance can be fixed through determination, study, tenacity and the never-ending search for (market) truth.
The others, not so much.
Using Loeb’s tenet, that is, ‘focus’, we’ve taken it and have gone short and continue to go short (not advice, not a recommendation), the biotech sector via LABD.
There’s no guarantee the short trade will work out; yielding a significant gain.
Any number of things can happen:
Internet outage, power outage, terrorist attack, supply chain and transportation shut-downs … literally, anything.
However, being short (from a personal standpoint) is better than wringing one’s hands, cowering in fear, looking to the (bought and paid for) financial media to provide direction on what to do in this unstable environment.
By using the life’s work of Livermore, Wyckoff & Loeb, its been determined, being short biotech (and possibly the mining sector) is the appropriate market stance.
With the caveat that even now, one might need to exit the trade; it still appears at this juncture, the on-going short (not advice, not a recommendation) is the most focused profit opportunity given the current environment.
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.
For what seems the longest time, a recurring focus of this site has been the biotech sector.
Specifically, the IBB (ETF) and SPBIO (Index).
There’s good reason for that. In this update, we’ll go deeper into the downside opportunity.
SPBIO, topped out on February 9th this year. The IBB (ETF) topped one day later.
Both went on to form a Quarterly reversal bar; indicating a long term change in character.
Of the two, SPBIO has showed more weakness having posted monthly lower lows for three successive months.
That relative weakness over the IBB index, has resulted in focusing on the inverse of SPBIO; specifically the 3X inverse, LABD.
Working with leveraged inverse funds is only profitable on a short-term basis or when the underlying index is in a persistent down-trend.
Otherwise, typical market chop results in value erosion of the inverse fund (not advice, not a recommendation).
For the reasons discussed in the last section below (Nuremburg 2.0), we’re anticipating the index to have a sustained and persistent drop to much lower levels.
Going way back to Reminiscences of a Stock Operator and the Wyckoff Stock Market Institute training materials, both in their own way indicated a speculative position was only entered if there was sufficient potential.
Livermore’s 10-points or more and Wyckoff’s cause and effect
In Wyckoff’s case, the ’cause’ was price action congestion built up in the P&F chart.
The ‘effect’ was the resulting move.
Which brings us to now:
Many times on this site, we’ve said biotech has built up congestion in a way, when it reverses and begins its decline, price action itself will create lower targets.
We’ll present two charts showing how that’s happening.
The first P&F chart in this update and provided below, has a projected downside target for IBB around, 116 – 120 area:
Note, the downside is not to scale as the real location is far below the noted area.
Biotech IBB, then went on to post lower action. That in turn has resulted in an updated downside target:
Once again, the downside is not to scale.
It’s apparent, as IBB heads lower, it successively builds lower targets and it’s only (potentially) just getting started.
The weekly chart of IBB below, spells it out:
If and when IBB price action gets to the initial targets, it enters a congestion area that will (by that time) be over seven years wide.
If the trend is still down, that congestion in turn would target even lower levels.
The “-80%” interestingly enough, comes from a quote by Steven Van Metre at this link.
That 80% drop also corresponds to a downside Fibonacci (not shown) projection of 423.6%, on the above chart.
This phrase has become so ubiquitous you can do a search for it.
So far, not a single mainstream financial site or YouTuber (still on that platform) has mentioned this fact in their analysis.
The speck injections are mass genocide and intended as such.
Two recent events resulting from injections are here and here.
If all of a sudden, injected pilots can’t fly (the first link), how are goods going to be transported?
Not generally known to the public, commercial air-transport is also used to haul freight (while carrying passengers).
Exactly how all of this (world crime) will break is unknown.
If and when it does, the result in the biotech sector as well as equities in general, could be successive air-pockets all the way down.
If the markets are in the process of reversing, ultimately going to the long awaited (since 2009), final draw-down (i.e. crash), then a likely bottom would occur where they (almost) always occur; during the third week of October.
In a nutshell, that’s the time frame.
Conversely, price action is the final arbiter. If biotech winds up effectively saying ‘not now’, well then, it has the final say.
Back to ‘Entries & Exits’.
One of the traders highlighted in the book (in addition to Weis), was William Doane; former Head Technician for Fidelity.
His timeframe is much longer than the typical market participant. He, like Weis are looking at monthly, quarterly and yearly charts.
That fact in and of itself, provides an edge.
One of the main take-aways from his section was (paraphrasing):
‘The first correction is the hardest. If you can get through that, it’s typically smooth sailing from then on’.
The biotech short via LABD (not advice, not a recommendation) may be at that point now. Painful to watch but necessary.
Next, we go to ‘Reminiscences’.
Those who have read the book, know all about ‘Turkey’; Mr. Partridge.
As the book states, he was much older than the rest who frequented the brokerage. Also, he did not appear to be that active in the markets (thus minimizing his transactions). He was interested in the big move.
The admonition from Partridge, was: ‘Don’t lose your position’. Don’t exit out, expecting a pull-back … that ultimately never comes.
So, we have two examples; three if you include Weis that begin from the very long time-frames and work inward.
Now, on to the market:
The long term, Quarterly analysis has already been done; linked here.
The chart in the link, is from last quarter and since then, (during this quarter), we’ve made new lows.
On the fundamental side, evidence is building by the day on what the ‘speck’ protection is all about.
Bonds could be reversing but have already pushed rates high enough (long enough) to choke-off critical sectors of the economy like here and here.
Now we see the dollar has bottomed as well.
It looks like a strong multi-month (or year?) rally. Correspondingly, gold is weak. The overall markets are stretched to ever-livin’ extremes; never before seen.
Whenever this baby pops, try logging on to chaos, or exit any position (except maybe for the long bond).
Our approach then (not advice, not a recommendation), is continue work on positioning short. So far, the ‘project’ is taking small hits in those attempts. We’ll see how basic materials (SMN) works out today.
One recent example; the bond move from late 2018, to early 2020.
During the low from October 2018 to November that year, were reports of professionals opening huge long positions.
At the time and as the weeks went by, it appeared that nothing was happening.
The delay would have caused the typical i-phone addicted ‘tweeter’ to lose interest many times over.
When it finally took off, bonds staged a huge directional move that lasted over a year.
Such moves are rare and require the ability to wait. Wait to get in and wait for the move; minimize transactions.
Each market transaction is an opportunity for error. Minimize the transactions and by definition, the errors are minimized as well.
That brings us to oil and more specifically, XOP and DUG.
The nonsense being promulgated by the financial press is that oil is moving higher on ‘hopes’ for an economic recovery.
Maybe injecting the world-wide population with potentially DNA altering technology (not even tested on animals first) for an ailment that does not exist will miraculously launch some kind of pent up consumer demand.
No matter. Oil and its attendants keep moving higher with the dollar moving lower.
Even with anecdotal evidence from an Oklahoma oil field worker (commenting on a Van Metre update) that was later confirmed by the EIA report did not cause oil to move lower … yet.
That is, until today.
The dollar attempted to continue its downtrend yesterday. Oil spiked as did XOP to the upside and DUG to the downside.
This morning is a different story. Dollar proxy, UUP is trading (pre-market) right at its highs of the last session in an apparent reversal.
Oil along with XOP is down, with DUG up.
Looking at XOP, we see it’s hitting a long-established trend line.
With the dollar, bond, and overall market extremes, no recovery in sight and more probable, another (and complete) collapse; this may be the spot (not advice, not a recommendation) to position for medium to long term on the short side.
That’s exactly what the firm has done. Looks like our position was a day too early as we sat through yesterday’ spike lower in DUG.
Volume remained heavy for that DUG session. Weekly volume is looking to be the largest (big-money moving in) since at least 2015.