Saturday, October 03, 2015

Biotechnology: "Bouncy bouncy......kersplatt"

Readers will recall earlier in the week my expectation of a bounce in biotechnology stocks which has since materialized and quite profitably for those who were able to take advantage. Please remember that Janet Yellen had previously said that biotechnology was a little over-subscribed and inflated price-wise so naturally it made an excellent target for short-selling when the market decline began, but, during periods of decline high volatility bounces are expected which can also be lucrative when timed properly. To aide with timing an online colleague recommended $BTK  instead of IBB for watching biotechnology and I'd have to agree. The twin shoulder and head pattern is still apparent however the neckline and troughs are much more clear and provide a much better picture of what is happening. The most recent bottom came in perfectly inline with the troughs created previously by the left-shoulders.
The question now becomes how high up is this second right shoulder going to ascend? Two possible scenarios emerge. The first is that it stops at the neckline (about 3550) put in place by the two left shoulders back in March and April. The second scenario is that it bullishly blasts through this and ascends to either the EMA(34) or the diagonal resistance line put in place by the successive series of lower-highs since July (about 3750 and 3850 respectively). These levels have been identified by the red circles.
I'm partial to the second scenario with $BTK finding resistance at the EMA(34). Friday's move was incredibly bullish and the miserable jobs report has given the market some impetus for a move up due to an expected delay in the rates increase for at least another six months. Any increase before the end of the year seems extremely unlikely now. This is why I'd list biotechnology as a strong speculative long/buy intended for aggressive traders only.

The full stochastic indicators (5 and 14) on the daily charts are poised to cross over bullishly so we can expect the final shoulder to go in over the next over the next five weeks with about four weeks for the ascent. If the past is any guide we should see ascending bearish wedges develop as was apparent in the last three shoulders.
Early in the new week I would expect another insane rise to put the upper ceiling on this wedge and thereby allow us to delineate the shape of the rising bearish wedge and evaluate the volatility expected in it's rise over the next three weeks.