Thursday, February 04, 2016

Biotechnology: Neither Hide Nor Hair

People generally don't like being reminded of things like their mother's birthday, the fact that they have no friends or a girlfriend, that I'm not rich yet and so-forth. These comments always come up in conversations as some sort of playful riposte, but there's always some painful truth in the comment when they do occur. Humans by our very nature I think are always suckers for the truth, but the truth often hurts and often comes as a bit of a let-down when we are confronted by it.
A few days ago I may have prematurely recommended Biotechnology (XBI $BTK) and I write to you today still making that recommendation. I was waiting for a higher low to appear on the RSI(5) to produce the "buy" signal, but after another slight retracement and the creation of a double-bottom the line appears to be holding with momentum indicators now showing divergence. The big news today for me was seeing the TRIX indicator beginning to cross-over, too. Stochastics have shown that the Biotechnology has been heavily oversold for a long time and now the divergences have begun to emerge.
The only problem with this call is that it's purely an indicator based play. I can't make or see any patterns or channels (or when I do very poorly), it doesn't really fit in my previous narrative of a double head-and-shoulder pattern, so a part of me feels there's a lot of risk involved in this trade. The only thing that would suggest that we are set for a bit of relief rally in biotechnology (because I'm not sure the rest of the market is going to follow) is that a double bottom has appeared after a prolonged down-trend. The first bottom appeared when it drifted outside the Keltner channel in the second week of January and the second I think was only yesterday. Be careful out there, it's a difficult market to read.