IBB or XBI- Pick Your Poison

The market came down hard at the open but then put in a V recovery at about 10 am and ended up closing at or near the highs of the day, so another dip got bought.

10-minute chart

Biotech continues to exhibit odd behaviour as IBB goes down and XBI goes up. I’ve told you the reason why this happening, and right now the group, hopefully, sooner than later, will get some bullish help from the likes of AMGN, CELG, BIIB, GILD and REGN.  These are the big five and they carry the biggest weighting in IBB.

XBI, on the other hand, was green today as IBB was red.  We are seeing this more and more and it’s interesting because it doesn’t happen a  lot.

I mentioned in the post the other night that we may be actually seeing a rotation within the same sector, meaning they are selling what are considered to be the blue-chip biotechs to buy more of the small and midsize names.

Just look at what JUNO and BLUE have done the last couple of days. I’m still sick that I pulled the trigger too early on those two.  Stocks like FMI popped 20% today.  I’m seeing a lot of this action.

I added LABU as a new recommendation today because of this thesis of mine. Hopefully, I am right. As you know, LABU tracks the action in XBI, not IBB. We’ve traded this one three times in the last six months for enormous gains and hopefully, we can be right one more time.

Why did I buy it?

XBI has tested and held the uptrend line three times now going back to June (red arrow). It also tested it again around August 21 and we had an enormous run.  In both cases, it broke the 50-day moving average to the downside, just like its doing now, but then rallied.

Also, the relative strength and stochastics are oversold as well as the MACD.  To me, this could be a perfect storm for a strong reversal to the upside, or I could be completely wrong.  But I have to go with my indicators that have served me well over the years, so hence the long position.  Once over 84.50-85.00 on a closing basis, we should be in good shape because a close there will have cleared some overhead moving average resistance.

Many of the big names (CELG, AMGN etc,,) are really seeing some extremely oversold levels.  That doesn’t mean they won’t get a little more oversold, but this is the place where you want to nibble.

Biotech has been one of the best-performing sectors not only this year, but over the last five years, and we have two months left to the year, so it makes sense that hedgies and PM’s should chase what has worked into year end. “Should” doesn’t mean guarantee, but that’s my story and I’m sticking to it.

New name CLMT triggered today.  It is a new addition to the P&L.

Also, the balance on FPRX and SGEN both stopped out for great gains.

See you in the morning.

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