Tickers discussed: IBB XBI
The post outlines trade ideas on the Biotech ETF’s $IBB and $XBI .
Snapshot Summary
- Large Cap Biotech ETF $IBB and Small cap Biotech ETF $XBI are both hitting key resistance at the top of their ranges
- Both are flashing a double top set up. In prior instances, especially with $IBB, these set ups have led to deep pullbacks
- Both have large bearish divergences which support the double top thesis
- Traders who are long may want to book profits; then wait to see if price can breakout
- Traders with no position can take a “low-risk” short against resistance with a stop just above.
- On a side note. It’s no secret that both political parties have drug pricing in their cross hairs. As the political season ramps up there will probably be more chatter about it. While this may be more of an overhang for traditional pharma stocks, traders may not make that fine a distinction. Make no mistake though, the trade ideas are based strictly on the technicals.
$IBB Large Cap Biotech ETF Daily
With price is at / near the prior highs, notice the stark bear divergences on the RSI and PPO indicators ( indicators much lower than when price was at the same level ). Now look back over the last 2 instances where this set up presented itself. Both times the attempted breakout failed and big pull backs resulted. I like the idea of a short position against $124 with a stop just above. Pretty tight set up with lots of potential downside and only about $2 of risk. Traders can opt for straight puts or put spreads to reduce cost and damper volatility on the position. My initial target would be $120, then $116.
$XBI Small Cap Biotech ETF
Here too the set up is nearly identical to $IBB. A double top set up with stark bearish divergences. I like the idea of going short against $98.50 or so with a hard stop at $99. If price takes out the prior high, then the trade simply did not work.
Pulling it all together
With the market strong, trying to short anything has been tough. That said, the chart set ups are strong and the price location is near optimum for a “low risk” try at a short with stops close by. For those not interested, simply keep these tickers on the radar. If price is able to break out, you’ll have a nice trade location for a long against the prior high.
Lastly, if you do put on a trade, no reason to do both. Pick one or the other. By their vary nature, the XBI ETF will be a bit more volatile.
Disclosure: No position at this time but I plan to initiate a trade shortly.
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