Back in late October, we turned much more bullish on the biotech sector when the IBB biotech ETF broke back above its summer highs. The IBB rallied 16% over the next two months…outperforming the S&P 500 (which has rallied 7% over that time). However, as we moved into early December, we highlighted that the group had become quite overbought (based on its weekly RSI chart) and thus probably needed to take a “breather” over the short-term.
The IBB was breaking slightly above its “double-top” highs from 2018 at the $122 level, but we said that we thought the group would probably pull-back a little bit…to work-off some of its overbought condition…before it took a more serious run at making a key “higher-high”. (We also highlighted that it would actually be better for the IBB over the longer-term if it saw a short-term pull-back. No risk asset moves in a straight line…and we felt that it would be healthy if it took a “breather” at that time.) Sure enough, the IBB did pulled-back early more than 5% early late last month and very early this month…which indeed helped it work-off a lot of that overbought condition. More recently
Of course, the IBB could still bounce around a little bit before it bounces in a sustained way, but it has begun to rally once again. Therefore, we’ll be watching it very closely over the coming days and weeks. If it can bottom-out near current levels any time soon…and bounce-back and take-out it 2018/2019 highs, it should lead the IBB to run sharply up towards it all-time highs from 2015 (12% above its current level).
It is an election year…and there’s no question in our minds that at some point over the summer (during the “Political Convention season”) that the polling for the general election will show a very close race. When that happens, this group could/should see another round of weakness due to political reasons.
However, the biotechs…and the healthcare sector in general…both still look to have more upside potential before we have to worry about the politics. Therefore, if (repeat, IF) the IBB can break back above their December highs of $123.50, we’ll pull-down the yellow flag we raised back in early December…and send green flag back-up the flag pole.
You can see the interview we did on this subject with CNBC in the video section on the Marketfy site (to the right)......To get insights like these on a daily basis, please subscribe to my investment letter, "The Maley Report" (TheMaleyReport.com). Thank you very much.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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