Biotech Out of Intensive Care, But Still in the Hospital

• Posted by Greg Harmon
• on September 2nd, 2016

The entire healthcare space had a great run higher in the stock market off of the long term bottom in 2009. The Biotech sector specifically rose over 580% at its peak in July of 2015. But since that time, when the broad market settled and started moving sideways, the Biotech Index ($IBB) has had a very rough go of it. From a high over $400 it has fallen as low as $240, and is now consolidating. Is the worst over?

The long term chart below suggests that despite the patient being out of the Intensive Care Unit, it still needs to be monitored in the hospital for a while before sending it home. The good news is that the momentum to the downside seems to have stalled and is leveling. The RSI is holding near the mid line while the MACD is leveling into the zero line. Stabilizing.

But there are vital signs that suggest the whole progression of the disease may not have run its course yet. Since the top the Index has fallen in two steps of about equal length. Each time it has then bounced slightly, up to prior support levels. The first time this happened it then fell hard again in the second plunge. August saw another rise to prior support.

The first two moves lower suggest that a 3 Drives Pattern may be playing out. A third correction of about equal length would put the Index at a 61.8% retracement of the entire leg higher from 2009. This would be a critical retracement level for traders.

The Biotech Index could continue to move higher, and a close over $320 would be a signal that the doctor could send the patient home. But until then, more observation is necessary on this timeframe.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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