NASDAQ Biotech Index Update

The NDX Biotech Index won the media's bear market award with the prerequisite -20% or more decline; in all actuality a bear market is decided by trends not a particular threshold of something like 20% which is very arbitrary and holds little meaning between a high beta and low beta asset, this is why Dow Theory has trend classifications to determine the market trend.

In any case, being down as much as it was after being up as much as it was has generated some interest. My first look at the NASDAQ Biotech (IBB) was on April 10th NASDAQ Biotech Index- IBB . I found the asset interesting for a number of reasons and since the April 10th post, many of the things the charts were showing as higher probability have come to pass or are right there now.

There are two potential trades in IBB or the leveraged versions (BIB long or BIS short); one would be a H&S volatility shakeout of new shorts as there's a H&S price pattern in place that has seen the neckline broken. The stronger trade in my opinion is IBB short at the top of the shakeout, this is the 3rd and last place I'll short any H&S top. Lets check the charts, as far as a possible long trade for a shakeout move, if the charts support that option to a degree in which it looks very high probability then it's something worth considering, if not, then I'd try to wait for the short set up which is really the highest probability play for a longer term position trade.

 This daily chart of IBB shows the stages and the Left Shoulder, Head and Right Shoulder of the H&S top with the break below the neckline and a move that is VERY close to a shakeout of new shorts which would be above the neckline, it would be at the end of such a move above the neckline where we'd look for the longer term trending short as that would be a better entry with much less risk.


 The 15 min chart is probably one of the best cases for a bounce in IBB, quite a few of you have been interested in the position, I have urged some patience as the signals and resistance in the area didn't look like an ideal long entry.

 This is a closer look at the 15 min chart and the recent resistance that was hit which also pairs up pretty well with the H&S's neckline resistance, thus it was turned back yesterday with the rest of the market.

 Short term this is why I was urging patience on any possible long trades for a move above the neckline, I also told most of you that the general market updates should largely apply to IBB as well, especially the QQQ updates, they may not be perfect, but they'll be very close.

 2 min chart backing off as well at resistance, this is often where retail traders will enter a larger short or wait for (what appears to be) a failed test of resistance at the neckline to enter their first short.

 3 min chart... very much like the broader market...

5 min chart

and the 10 min chart.

So as you can see, at this time, I don't see a reasonable long entry for a volatility shakeout move, it may come, it may not, usually they do, but I don't see a good reason right now to be long for a bounce/head fake move.

I do see a lot of reasons to be short this one for a longer term trending trade as it should enter a primary bear trend, but again I'd rather be patient and see if we get the typical entry above the neckline and right in the area of the right shoulder.