We are trading at new all time highs. The Biotech ETFs IBB – iShares Nasdaq Biotechnology Index Fund and FBT – First Trust Biotechnology Index Fund have done it. This is something you should pay close attention to. Why is that you might ask… It’s really simple. So many are screaming overvalued, unsustainable, parabolic blow-off top, double top in the making to name but a few. Price has proven them wrong for quite some time and keeps proving them wrong. This is significant as the situation could develop into one of the best trading opportunities in quite some time. With every new all time high the pressure increases. Higher prices will induce those on the sidelines to give in and chase, shorts will have to cover if positions keep moving against them. That is the fuel that is needed for parabolic blow-off moves to unfold.
Is it really going to happen? Frankly, I have no idea. I see new all time highs and proper pattern pressure. IBB is displaying a very bullish ascending triangle in the making. My job is not to fight strong trends. My job is to go with the flow and take the path of least resistance. The charts will tell me when to get out. I manage my risk, there is really not much else I can do.
As I have stated before: ‘You can either lose your opinion or your money’. Put another way: ‘Trade what you see, not what you think’.
Trading is not about ‘being right’ or stubbornly sticking to your opinions or positions. ‘I told you so’ is not going to make you money. Instead, focus on going with the flow. When price confirms you are right, stick with your positions. When price proves you wrong, forget about your ego, get out and move on.
Click on chart to enlarge:
Technically speaking one could argue that the chart of FBT is even stronger. What I am specifically referring to is the fact that FBT gapped above its former all time high levels. Add proper pattern pressure to the mix and you have one of the most bullish constellations the market has to offer. Odds are the true parabolic move is yet to come.
Keep in mind though FBT is holding only around 20 positions and is therefore much more concentrated than IBB which offers a lot more diversification. In a nutshell, if the fund managers keep doing a good job FBT should outperform. If they don’t, things can change pretty quickly. If the Biotech sector is about to enter a true parabolic move I think speculation in mid-cap Biotechs will increase and traders will focus less on the big cap names like GILD – Gilead Sciences, AMGN – Amgen, CELG – Celgene, BIIB – Biogen Idec, REGN – Regeneron Pharmaceuticals etc. XBI – SPDR S&P Biotech Index ETF is the one Biotech ETF that offers the best exposure for the aforementioned scenario. It is holding around 50 almost equally weighted positions in big and mid-cap biotech stocks.
Have the courage to say no. Have the courage to face the truth. Have the courage to do the right thing because it is right. – W. Clement Stone
Twitter: https://twitter.com/Tischendorf
Investing in your education always pays. Learn how to read chart patterns like a pro! Tischendorf Letter Premium: https://members.tischendorf.com