Block Traders' XBI Forecast: A Sequel

 |  About: SPDR Biotech ETF (XBI)
by: Peter F. Way, CFA

A month ago, to illustrate the capabilities of block traders to appraise the near-future price prospects for stocks and ETFs, we proffered the XBI Biotech SPDR as an example.

Here is an update.

At the time of the prior post, the forecast was for an upside potential price of $54.47 (+4.1%) and a downside of $49.39 (-5.6%). Its history, following 394 prior forecasts of like proportions, was that closing prices higher than the forecast day's closing price (then $52.32 ) happened 46% of the time, with average gains of +5.4%, and lower prices were seen the other 54% of days in the next 3 months, falling an average -6.8%, with largest losses typically running -9.6%.

Not a particularly exciting moment in the life of XBI, but we simply wanted to brag about a good past history of identifying price extremes.

During the past month XBI has in fact declined, in sympathy with the market, to $46.61, off by -11%, on October 28. The forecast at that point was a high of $51.52 (+10.5%) and a downside of $46.48 (-0.3%). The odds for higher vs. lower prices then were 3 : 1, with 75% of the days in the next 3 months following 53 similar prior forecasts averaging gains of +8.3%. Loss days averaged -4.5%.

In our book, these are attractive proportions, indicating XBI should be bought at that time.

It has turned out well. By November 16 XBI rose to $51.31, and today, the 17th, passed the $51.52 upside target on an intraday basis. Our practice is to close out such a position and look for ways to re-employ the capital, including the +10.5% gain. It took 13 days, better than the usual 40 or so.

Disclosure: No current position in XBI