Friday, July 10, 2020
IBB Biotech ETF Weekly Chart; Overbot; Rising Wedge; Negative Divergence Developing; Upper Band Violation; Price Extended
The biotech stocks explode higher on hopes that a vaccine can be developed to combat the global coronavirus (COVID-19) pandemic. The biotech orgy is going on in the back seat of the '57 Chevy at the drive-in theater while the tech and FAANG frolicking occurs in the front seat. The FAANG stocks, and Mr Softy (MSFT), and the biotech stocks, pump the Nasdaq indexes into new bubblelicious record highs.
The IBB biotech ETF weekly chart rises like a rocket ship with a doji candlestick up top although this candle shape can change since today is the last day of the trading week. The stochastics are overbot agreeable to a selloff. The rising wedge is ominous since the collapses from this pattern end in carnage. The red lines show negative divergence in play except for the MACD line that remains long and strong. Therefore, price will relax lower for a week or so, then come back up fueled by the MACD, and at that time price will likely top out on the weekly basis with the MACD going neggie d.
The daily chart is in universal negative divergence so it will likely receive a neggie d spankdown now. Softness for a few days jives with the negative divergence shown above for the weekly indicators. After a few days or week or so, however, the IBB should come back up as described.
During the crash this year and drop in biotech stocks, the ADX was on the verge of calling the trend lower a strong trend (pink box), but, as usual, the Federal Reserve stepped in to save the corrupt markets and protect the wealthy class. Interestingly, despite the big euphoric upside rally, the ADX is in the basement at 14 saying it is not a strong trend higher. Thus, the rally is built on the vaccine hope and hype. The Aroon green line is at one hundo with nowhere to go but down which is bearish.
Price tagged the upper standard deviation band so the middle band at 123, and rising, is on the table and also the lower band down at 98. Price is extended above the moving averages requiring a mean reversion lower.
You never want to be in a rush to short a stock or index with momentum. Momo leads to momo most of the time. Keystone does not hold a long or short position in biotechs but may play the very nimble short now in the daily time frame. You must be attentive and not get greedy because the weekly chart is going to bring price back up. If you want to play it safer, and put on a smarter trade, wait a couple weeks. Put IBB on your watch list for a short. When it comes back up on the weekly basis after a little stutter-step in the days ahead, short it if the MACD goes neggie d. If the MACD continues sloping higher, you have to wait another week or two. But as soon as the MACD goes neggie d, and the other indicators remain neggie d, the top is in on a multi-week basis. A good time to build a short position in IBB, with the weekly time frame in miind, will probably be the last two weeks of this month into early August.
Any happy talk on the vaccine news front creates short-term glory pops. However, judging from the history of vaccine development, there is likely a long road ahead. The doctors and scientists cannot even figure out the coronavirus as yet but biotechs are squandering billions of your taxpayer money on vaccine development. Most vaccines, even if they show some efficacy (they work), then go through a few years of iterations to tweak the formula just right. The public's opinion may come into play as well. Many folks do not take flu shots and would not want to take a vaccine. Thus, short IBB now if you desire some quick speculation, be nimble for a few days and then cover, then wait a couple weeks for the MACD on the weekly chart to go neggie d and that will identify the top where IBB will then trend lower for several weeks. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.