Don't Ignore This Chart!

Biotech Rallies But Resistance Ahead

Tom Bowley

Tom Bowley

Chief Market Strategist, EarningsBeats.com

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 of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More