SBIO Best-Of-Breed Biotech ETF – Bullish Measuring Gap Signal – Higher Prices Ahead

by Olivier on July 19, 2015

Recently I posted a chart of the SBIO – ALPS Medical Breakthrough ETF.
Here’s my original tweet:

Here’s the chart in case you can’t see it:

SBIO ALPS Medical Breakthrough Biotech ETF Runaway Lockout Rally Bullish Technical Analysis Price Stock Chart Pattern Measuring Continuation Gap

Best-of-breed Biotech ETF is the most fitting term that comes to mind. Why? there are several reasons. The main one is the following: It was the first one to print an all time high after the June/July pullback. From a relative strength perspective it outperformed IBB and XBI the two most visible Biotech ETFs. That makes SBIO a leader. My goal is to have exposure to leaders and to avoid laggards at all cost.

Another reason why I am bullish SBIO is because you do not have single stock risk. When seeking exposure to the Biotech space this is a very valid argument. Granted, an excellent stock picker will outperform SBIO but if you have too concentrated a portfolio in the Biotech space disaster can strike. Basically SBIO allows you to really load up without having sleepless nights.

I went through every individual chart of the SBIO holdings. There are about 15 or so of the roughly 80 stocks SBIO holds I wouldn’t want to own. That’s the price you pay when you own an ETF. The real advantage though is that I can avoid analysis paralysis. Instead of torturing myself thinking about which individual Biotech stock to buy next, I can simply load up on SBIO.

I am sure this will come as a surprise but the most important factor why I really like SBIO though is a technical reason. What we recently witnessed could end up being a measuring gap or continuation gap. Novice traders and inexperienced investors most often do not participate in runaway moves or lockout rallies. Instead of going with the flow they want to be smart and are only willing to buy on a pullback. I have bad news. If this is a true momentum move within a powerful bull market this is a losing proposition because they are waiting for a pullback that never comes. True measuring gaps only get filled after the entire move has run its course.

I obviously do not advocate chasing blindly. But sometimes one has to be willing to pay up a bit. The main takeaway is that in bull markets entry opportunities that are within a normal person’s comfort zone are very rare. They do happen occasionally, but it requires you to act decidedly. In order to have great results in bull markets you simply seek maximum exposure and you show a willingness to chase a bit. Then you keep doing it until it stops working.

Click on SBIO – ALPS Medical Breakthrough ETF chart to enlarge:

SBIO ALPS Medical Breakthrough Biotech ETF Runaway Lockout Rally Bullish Technical Analysis Price Stock Chart Pattern

To make a long story short, this is about stepping outside one’s comfort zone. As a picture is often worth a thousand words here’s one I tweeted a while back. It pretty much sums up the current situation:

Leaving Your Comfort Zone Where good things magic happens

Conclusion: For good things to happen you have to be willing to leave your comfort zone.

A comfort zone is a beautiful place, but nothing ever grows there.

Twitter: https://twitter.com/Tischendorf

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