Mish's Market Minute

How Biotech Confirmed a Reversal Pattern in Both Price and Momentum

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For roughly three months, the biotechnology ETF (IBB) has been trending lower. Though it's made multiple attempts to clear the 50-day moving average, it has failed. However, IBB has made consistent runs towards its 50-DMA and, with the recent breakdown, is showing that it's potentially ready for another one.

If we look at IBB's past 3 attempts through its 50-DMA (Blue Line), we can see that each one had a recent break to lows. This can be seen as arrows on the above candle chart. We can also see that momentum broke down under the lower band of the Real Motion indicator (RM) on two separate occasions following the attempts to clear the 50-DMA. As RM cleared back over the band, it confirmed that momentum was gaining, and that price was coming back from an oversold area.

With that said, Tuesday gave us another signal both in price and in RM. This means that IBB could be looking to head towards the 50-DMA area near $152. However, if Monday's low were to break at $138.33, the setup would fail and IBB would most likely break down even further.


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ETF Summary

  • S&P 500 (SPY): Back over the 50-DMA at 466.69.
  • Russell 2000 (IWM): Now watch for a return towards the middle of range of the 225 area.
  • Dow (DIA): 365.64 next resistance level.
  • Nasdaq (QQQ): 377.37 to hold.
  • KRE (Regional Banks): 75.76 support.
  • SMH (Semiconductors): Flirting with the 50-DMA at 302.99.
  • IYT (Transportation): Sitting under 50-DMA at 271.92. 281.45 resistance.
  • IBB (Biotechnology): 143.25 to hold.
  • XRT (Retail): 10-DMA at 88.95 next to clear.


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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