NASDAQ Biotech Follow Up (IBB)

After the last post, I figured I'd post some charts of IBB. BIS is the 2x inverse (2x short IBB).

This is what we were looking at in June, a head fake move after months of very tight, VERY obvious resistance, just screaming for a head fake move, IBB / NASDAQ BioTech Follow Up.

Today's charts (just IBB as there's already 9)...

 On a longer term daily chart of IBB,  note the concepts that we see in just about every stock that has moved to a topping scenario. These concepts will work with any asset and in any timeframe; they are more about changes in character and how changes in character lead to changes in trends.

At #1 we have some downside from early 2014 and a lot of volume as there's a capitulation or selling event' essentially all the weak hands sell at once which creates a nice opportunity for Wall St types as they can buy in size and on the cheap and no one ever tends to ask, "Who's on the other side of the trade?" Someone is and they're going to want to sell those shares they just accumulated on the cheap at a gain.

Note the channel for most of 2014, that's a clean trending channel, but at #2 price starts to peel away from the channel on the upside which "seems" bullish, but it's almost always a red flag that there's change in the air. At #3 price peels away so much with such a major change in character, it actually ends up being the top and a lot of traders chase price higher and are stuck at that level. #4 was the head fake move we had expected in this post from June, IBB / NASDAQ BioTech Follow Up.

 This is a closer look of the same chart, the same changes in character at #2 and #3 which prioduces a resistance zone as clear as day with about 3 months of clear resistance. Just about every technical trader that has been in love with biotech the last several years, has put price alerts on IBB or watches it daily for a breakout above resistance as that is confirmation in their dogma of a breakout and a resumed trend higher, but in our experience once we start seeing the changes from 2014 take place, we know there's a trend change coming. Therefore when we see 3 months of resistance at the exact same area, we know it's a perfect head fake set up which technical traders will chase on what they see as confirmation of a breakout and smart money will be there to sell to them at the best prices available and in size as there's plenty of the one thing their huge positions need, DEMAND.

#4 in yellow is the head fake move or failed breakout we were looking for in the post linked above.

Here's a closer look of the head fake move we were looking for in June and a 4 hour 3C chart, an exceptionally strong timeframe. Note the disposition of the 3C chart vs. price at the breakout. Instead of moving higher and confirming price action, we see a negative divergence which means heavy distribution in to price strength and demand above resistance for it to show up on a chart as strong as a 4 hour chart.

 Coming around from the short term timeframes, just like everything else we have seen indicating distribution in to higher prices, despite there still being a pretty solid set of charts in the 10-15 min range, which is why I suspected a bounce would take up most of this week (that's not just upside, but lateral movement and the reversal process) in the The Week Ahead ...

"The 15 min charts are magnitudes stronger and their trends have improved significantly, they are showing large accumulation areas and a large base area. Their near term (next week) highest probability is a pretty darn strong bounce."

 The IBB 2 min chart is seeing the same trend we are seeing in every asset today, distribution in to higher prices which are migrating to stronger timeframes intraday.

For instance, this 3 min chart is not only interesting for the leading negative divergence in to this week, but intraday as well,  there's no attempt at near term price confirmation.

And we see the same thing all the way out to a 5 min chat intraday.

This is a trend of the IBB 15 min chart with confirmation to the left, a leading negative divergence at the June head fake/failed breakout and a leading negative divergence in to this week as well.

Here's a closer look of the same chart. Note the price/3C trend confirmation at the green arrow, I love seeing this as it's like calibration of the indicator, confirming price action, then showing a real change with distribution EXACTLY where we'd expect it.

I probably don't need to point out the current divergence and this is why I like BIS long (2x short NDX Biotechs). You can probably also tell why I fell comfortable adding and leaving a little space to add something like an options position at the right time.