Technical Analysis Comparison – Gold, GLD, HUI vs. Biotech, IBB, XBI

by Olivier on September 5, 2013

Tonight’s post is an update of my thoughts on Gold and the Gold Mining Stocks versus the Biotechnology Index and Biotech Stocks. The last time I mentioned Biotech was during my first Tischendorf Letter Audio Interview a few weeks ago. I thought the place to be in the near-term future was small to mid cap biotech stocks. The biotech stocks turned out to be one of the best performing sectors.

Here is why I think odds are very high for Biotech to continue to outperform and Gold and gold related stocks to continue to underperform. Click on the charts for access to more information in the annotations:

Up-to-date IBB – Biotech Index chart on my public list

IBB – the iShares Nasdaq Biotechnology Index Fund is clearly in an uptrend. The chart is trading very close to its all time high and is already showing signs of a parabolic move. Granted, parabolic moves are not for everyone but from a purely technical perspective this is the technical setting with the best odds for explosive moves to the upside. Put another way:

  • In uptrends surprise moves tend to be to the upside 
The reason is very simple. There is no overhead resistance and traders are not showing any losses. There is no reason to sell as they do not experience any kind of pain. Hence the situation is best described as one having ‘Blue Sky Potential’.

Gold and the gold miners as represented by the HUI – Gold Bugs Index display quite a different technical picture. Both are hitting resistance and have recently been forming a bearish wedge pattern. From a purely technical perspective this pattern should be resolved soon. The prior trend leading into that pattern should then resume. If that indeed is the case much lower price targets for gold and the HUI are to be expected. One metric to gauge trends would be to use a simple MA (moving average) 200. GDX and GDXJ are both trading below their respective MA 200. As long as that is the case they are by definition trading in a downtrend. Remember not to trade your opinions but to respect the charts.

  • In downtrends surprise moves tend to be to the downside

Up-to-date Gold vs. HUI chart on my public list

Conclusion: The low risk approach would be to avoid gold and gold related stocks as long as they trade below their MA 200 while seeking exposure to Biotech ETFs like IBB and XBI in order to avoid single stock exposure as long as the parabola is intact.

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Keep stock trading simple. You need only understand support, resistance, optimism, pessimism, price volatility and abnormal behavior. – Tyler Bollhorn

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