Monday, November 23, 2015

Biotechnology: Ascending bearish wedge back in play on $BTK (hey, that rhymes)

I called biotechnology as a "long/buy" recently while the S&P was heading towards a test of 2120. I naively said that the ascending bearish wedge had been invalidated when it broke a diagonal resistance at around 3750 on $BTK, but all I've ended up realizing is that is that the bearish ascending wedge is just getting larger and I now have to issue a strong sell/short signal on biotechnology. It may be a few a more sessions for the euphoria of the Allergen and Pfizer merger to wear off, but I've drawn the ascending bearish wedge or the bullish ascending channel to show where this index needs to go in order for the wedge to be invalidated. All the stochastic indicators are pushing the oversold region and there's a resistance line on the RSI(5) indicator comprising a series of lower lows which needs to be broken in order for this pattern to be invalidated.
Oddly enough if one were to have stayed glued to the biotechnology ETF XBI (which I was guilty of until recently) the stock seems to be happily occupying an ascending channel and appears to be imminently breaching another diagonal resistance at $71.00. The next few sessions are going to be critical in showing the direction of biotechnology and healthcare. I'm going to play it cautious and follow $BTK instead of XBI as it has been an excellent guide in the past. Please be careful, our second right shoulder may be going in.