Don't Ignore This Chart!

Biotech Rallies But Resistance Ahead

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The technical conditions surrounding biotechs ($DJUSBT) are bad, no sugar-coating here.  It's not pictured below but the DJUSBT did manage to clear 20 day EMA resistance on today's close.  However, I'm more concerned with the longer-term weekly charts where we've seen heavy volume selling, a death cross and an ugly MACD.  All of these technical issues developed AFTER a long-term negative divergence printed on the weekly chart over the summer months.  That was our warning.  Is there more room for a bounce?  Certainly, but I'd be careful assuming that this group will see much more than a token bounce.  Take a look at the chart:

Today's advance in the DJUSBT of more than 4% was nice and there's probably another 6-7% of upside still remaining until a significant test of the declining 20 week EMA occurs.  Should that occur, however, I'd book profits on this group and move to the sidelines until further bullish technical signs are confirmed.

Happy trading!

Tom

 

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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