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Biotech Looks To Have Bottomed

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Individual Trader


  • Biotech had a weak October.
  • We seem though to have printed a daily cycle low.
  • Eyeing up a possible long trade. Want to see how this week finishes.

Although the Biotech ETF (NYSEARCA:NYSEARCA:XBI) has bounced somewhat since the end of October, it still is down almost 5% since the 5th of October. This may smell of opportunity as this sector has outperformed other major indices whilst still trading below its all time highs of 2015.

Nevertheless playing this sector from the long side brings its own risks to the table. Since Donald Trump has taken over the presidency, any negative soundbites involving this sector has managed to tank biotech stocks temporarily. A similar occurrence is taking place in retail concerning Amazon's (NASDAQ:AMZN) future intentions for example. Once Amazon announces a possible new venture in a respective sector, shares of companies in that sector sell off as a result. Whether more drug pricing transparency can be achieved by Trump remains to be soon.

Bulls will claim that lobbyists will be able to keep the government out of this sector and in fairness since Trump has taken office, the bulls would be correct. However Trump seems to be like a dog with a bone with big pharma and that drug pricing is way too loose in the US. I get it. I live in Spain where drug pricing is mainly set which means, at least in this jurisdiction, the drug companies cannot set their own pricing and bring in huge profits. Technically because of how oversold the biotech sector became in recent weeks, we may have a long opportunity. Here is how I see things shaping up from a technical analysis point of view.

First off, it is key to find where the last intermediate cycle lows have formed in this sector. As I have discussed in a previous article on biotech, this sector continues to make higher highs and higher lows. Therefore all things being equal every intermediate low (they usually span around 20

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in XBI, LABU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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