Back on July 30th in this post & video, when the biotech sector was roaring to new all-time highs in one of the most powerful bull markets of any sector in years, if not decades, I made a clear case that a top in the biotechs, to be followed by a bear market of at least 20% was imminent. That call was made a mere 10 days, or 8 trading sessions after the biotechs printed an all-time high on July 20th, with the sector plunging near 50% in under 7 months since then.
I stated back in this post personally not only covering all my biotech shorts but also reversing to a long position within mere basis points the very morning of the very day the sector put in a meaningful bottom on Sept 29th, from that point the biotechs immediately rallied about 23% above the next 8 weeks, allowing me to not only side-step giving back any gains but also to add to my profits riding the bounce on the long-side. From there, my focus on the biotechs moved away from the typical swing trade (multi-week/multi-month) strategy to more of an active trading strategy with day trades & short-term swing trades measured in days to stepping aside from the sector altogether.
So where to do the biotechs go from here? Great question & the main reasoning behind this post. A link to the original video calling for a bear market in the biotech stocks, as well as a summary of what has occurred since & how we were able to trade it is to provide a bigger picture overview of what has happened leading up to the top in the biotech sector and just as importantly, what has happened since, which helps to formulate my analysis or outlook on where the sector is likely headed next.
Some of the more salient technical developments are highlighted on these weekly charts of some of the more popular biotech sector ETFs: XBI, PBE & IBB. I’m not yet ready to pull the trigger on the next long-term swing short entry but should the broad markets start to roll over soon in a convincing manner along with these major biotech ETFs breaking down from these weekly bear flag pattern, my preferred shorting proxy, as was stated back on July 30th, will once again be to short LABU (3x bullish biotech etf), which has the potential to once again provide gains comparable to the 85% profit booked on the last official swing short trade that was closed out here on February 3rd, just 4 days before the sector bottomed so far in 2016.