IBB: Anatomy of a 'sell' signal Part II: 03/21/2013

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IBB             down 4.7% on Friday on heavy volume which may have been related to Op/Ex. Selling in biotech issues weighed heavily on the $NDX/QQQ's, which was also under pressure from SYMC's big drop, and then all that selling apparently spooked the rest of the markets. While this may just be a one day sell-off for the QQQ's and others, I don't believe this is the case for IBB             .

IBB             has two Fib A-B-C down structures in place. For the first, IBB             is at the 138.2% level of 246 so I have chosen to use the larger A-B-C structure of Fib extension levels. The next Fib extension target of this larger structure is the 1:1 level at 239 and after that we have important support at 233 and then the 138.2% extension at 224.

The important level remains 233 as IBB             has not taken out a previous swing point going back to November 2012. If IBB             does not stop its decline at 233, then this would be new behavior and you can expect other swing lows to be taken out in time. If IBB             does in fact take out the 138.2% target, then the next extension targets are: 161.2% at 215 & 261.8% at 200.

If you look at the chart, you can easily see that IBB             is moving within the confines of what appears to be a bull flag . I didn't mark this because the chart is already too cluttered. The key to this pattern is the 233 level because should IBB             drop below that, then the bull flag morphs into a falling price channel for however long it stays within that channel.

Until IBB             ends its decline, it will put pressure on the QQQ's and IWM             so IBB             needs to be watched closely until it finally bottoms and reverses.

IMHO and subject to change without notice. GL
Excellent analysis Curtis from the beginning you've called this correctly; imho best from above is the "IMHO, this is a time for caution. If the markets and IBB begin a new rally there will be plenty of time to get in and enjoy the ride. This is not that time. Not yet." which you stated and have exactly right, as well. We did not get the bounce or sideways I was looking for and any retrace we did get was extremely weak. Interesting that this sell-off reminds me of APPL last year, where IBB's price appears to be "seeking" a bottom; believe you have it correct in that a CCI close over -100 BUT with follow through (MAY) indicate a start. I was very surprised we did not get that wipsaw 'kill the shorts' retrace early last week, which suggests real weakness.
Great analysis Curtis. So what are your thoughts today, since IBB went below $233 and bounced back up? I think GILD dragged it down today.
CurtisM ArsalaanArif
ArsalaanArif, if you're looking for an opportunity to go long this sector, then wait for the CCI to push back above -100 as a possible point of entry. But be careful because the CCI rose above -100 a few days back and then IBB rolled over.

Think of what's happened in the last couple of days as what happens when resistance is broken to the upside. You hit the level once, twice, maybe more times before you break through. In IBB's case, it has hit the 233 level twice now and found support, Will this be the case if IBB tests the 233 level a third time?

IMHO, this is a time for caution. If the markets and IBB begin a new rally there will be plenty of time to get in and enjoy the ride. This is not that time. Not yet.

Thanks for your comment and GL
2use CurtisM
I support that - things are not that smooth and better get in with clear skies, not under water
2use, agree. Thanks for your comments
SimGlenn CurtisM
A prudent approach to let this correction evolve before establishing new positions. NASDAQ and IBB & XBI support holding near 100 DMA. SPX still has 30 points downside before 100 DMA provides support, albeit weaker support than the 150 DMA near 1780. This rotational correction leads me to believe it will not be as severe since we are not seeing all indices correct simultaneously. It appears to be a short term oversold condition so I would expect a brief rally. All the while effectively a sideways movement continues to provide upper channel relief for rally into mid-year.
2use SimGlenn
Nasdaq 100 went under 100 DMA ...that is a really bad sign. SP500 and Dow hold on...but they all follow Nasdaq, and with the geo-political situation not stable we have a lot of reasons that could suddenly push it lower. One people start panicking on Nasdaq's low other indices will follow.
Minor intra-day breaches occurred, but not yet confirmed by multi-day close below those levels. 100 DMA are weak by nature so a fear oriented correction usually requires 150 DMA or lower channel support. This correction does not have the fear factor driving it, nor is it the result of froth in the SPX or Dow. Bubble sectors have deflated this time with that money flowing into value sectors. VIX never moved into the froth zone, and Investor sentiment remained neutral, and SPX and Dow had virtually no gains for 3 months. That tells me this is hedge fund profit taking in bubble sectors rather than a broad-based sell-off. Therefore, I believe the sell-off will end pre-maturely.
2use SimGlenn
IBB is a bubble sector :) When do you expect the sell-off to end? I.e. what would be pre-maturely? I give one chance on the SP500 reaching 50DMA. if that is broken, i take it to the sidelines. I already started as i believe that going in during a confirmed bull run is better than getting in hoping for it. Hope never works in stock markets
I believe the IBB and XBI have already bottomed. These indices were the furthest from 200 DMA recently and highly vulnerable. Strong support at the 100 and 150 DMA with RSI, MACD, and OBV showing climax level distribution. While there may be more chop I believe those indices will struggle to make lower lows. Individual stocks (GILD) may drive a bit lower.
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