Biotech (IBB) has been the focus of traders and pundits lately. Here is my take. (September 28, 2015)
The IBB looks worse than the 49ers did yesterday, which means it’s REALLY bad. Here’s what I want to show you today: the difference between the daily and the weekly chart. As I look at this, I probably see things a little bit differently because I look at both things all the time. But as I look at this, I see, this is where the buyers were last time, that’s why the sell-off stopped there. I can extend this over and assume that this is where the buyers are this time. Of course the biggest difference too is, look at this volume here, this is massive selling volume versus this. Which, by the way, lets go back and look. You think this is so much higher than this, and this was just puny volume? Check this out. We get rid of that, we get rid of these last few days of where we were really seeing some puking. Suddenly, this looks like a heck of a lot of volume.
So this is, in my view, what I would call a crescendo bottom, or a climax bottom, a climax low. If you’re thinking about shorting biotech, seriously, you really need to think again on two fronts. First of all, you don’t want to be shorting biotech. Second, you need to be thinking about whether you should be shorting at all because this is a horrible short. The uptrend is clearly broken; we see this, clearly broken. A retest of this prior support line didn’t even really occur. It could just get up to the 50-day moving average and now we’re down here. I expect, just as a function of the dynamics of exchanging money for stock versus stock for money, in other words buying versus selling, that you’re going to get some kind of a snapback tomorrow. So maybe you can take some of these stocks or even the IBB for a bit of a ride.
But frankly, it’s only a “bit of a ride,” because this is under severe selling pressure. When it’s all over CNBC, biotech, biotech, biotech, like these big, big declines, then you know that there’s something happening. But over the last ten trading days, six bars, this is down 20 percent. So that’s a lot. This is the bottom, right? No, au contraire. You look at the weekly chart, zoom out here, this darn thing can go to 150.00, I doubt it will. But what I’m saying here is, this is just now doing a “Thelma and Louise.” There’s plenty more room for the downside. So what I’m telling you is, you DON’T want to be shorting biotech. Now, if this rallies back up to here, to about 330.00 or so, I’ll show you what I’d be looking for, I’m not predicting it, it’s what I’m looking for, it’s what I’m hoping for.
If this rallies back up here, and I’ve seen this chart many times, and then right about here it starts to falter right around 330.00 and then starts falling off, that’s my short, with a buy stop right about here. Why? Well, lets look at this, Boom! This is what we expect, a high, lower high, lower high still, lower high still. And so if we see a rally back up to this general level, and I probably put this buy stop a little low. The bottom line is you want to see this come back and then short, right? Just see it come back there, snapback. Boom! Fire off a short, right? Wrong! No, this is when you watch for more of a rollover. It’s really kind of heartbreaking to see people short stocks just because they’re up at resistance. Because then if there’s kind of a short melt up and the stock starts rising further, suddenly they’re in a short squeeze. And because they shorted there in the first place it’s apparent that they don’t really know how to short.
So now you’re in a wrong strategy for you, at the wrong time and the wrong position size, ultimately you’re going to get the wrong result. So I want you to wait on the short side. But for cryin’ out loud, if you’re thinking “this is the mother of all buying opportunities on biotech”, I mean to tell you, that’s just not the case. Short-term, sure, look for some kind of a snapback. But long-term, this isn’t going to hold, this isn’t going to hold. When you get this kind of a trend, that’s gone up so much and it finally breaks down, you’re in for more pain ahead. 5.22 The best thing that you want to do, this should be your biggest position (DXYO). The dollar was down not even 1 percent, 17 percent of 1 percent today, the dollar was down. My point is, and I see some of our members, somebody goes, “It’s good to be in cash,” or whatever.” You’re not in cash you’re in the dollar.
This was a MONSTER position. It’s been a MONSTER position. THIS is your MONSTER position in the dollar, relative to the S&P 500. Don’t you wish you had just gone into the dollar when the S&P 500 initially broke? But you didn’t do that, and that’s fine, you can’t forecast this. You can kind of come close. The point is, ultimately the market’s going to bottom. I’m giving you “pearls” here, I want you to really think about this. This isn’t wisdom from me, this is your opportunity to find your own wisdom. And I’ll say it again, it’s not wisdom from me, it’s an opportunity for you to find your own wisdom.
Think about yourself in like December of this year. As your looking at your portfolio, trading, investing, whatever, as you’re looking at your portfolio, and you know you’ve got tax season coming up right after the first of the year; look at your portfolio, think about what you’re seeing then and see yourself looking back on today, at the end of September. Are you going to be looking at the stuff you did today, the stuff that you do tomorrow or the next week or two, and thinking, “Oh my good lord, what a bone head I was? Why did I do that? I knew better. I should have, X Y Z.” Whatever it was. Remember “Game Day,” Kevin Costner, one of my favorite movies because of all the lessons there. First of all, don’t be a lying “butt-head” okay. You don’t get drafted at the top. He wrote this note, Vontae Mack, no matter what, or what or whatever it was.
The whole idea is that you get “caught up” during the game, during the draft, when everything’s happening, when everything’s moving really fast. You get caught up and you forget about your game plan, you forget about your, in this case, your non-market hours observations and thoughts. And so what happens is, after the fact, when you look back you go, “What the heck was I thinking?” What I’m telling you is, and this advice is free, but it’s worth a heck of a lot more that you’re paying for it. This is the chart you want to look at (S&P 500). I was on CNBC, frankly I’ve totally nailed it the last couple times I’ve been on CNBC. I’ll probably get a couple “tweets” saying, “Tell us how great you are Dan.” I’m not talking about that, but I am talking about this. I understand this market, and there’s nothing good about it.
This last low here of 18.67 down here, I’m telling you, this is not THE low. You’re going to get some wiggles and jiggles, you’re going to get some moving around here, that’s fine, nothing goes down in a straight line, just like nothing goes up in a straight line, but didn’t this sure feel like down in a straight line? But I want you to play it really “close to the vest.” Think about what you’re going to be thinking about at the end of December. Are you going to look back on you’re actions over this next week or two or three, as we get into earnings season, and think, “Wow! Yeah, I’m learning, I’m learning. This is great! I’m making better trading decisions.” Or are you going to think with a little bit of private, secret embarrassment, “I thought I was better than this?” You know what? I’m just going to leave you with that.
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