Think Biotech is on the verge of a comeback? Think again. (April 06, 2014)

I want to look at biotech (NASDAQ:IBB ), and also a new indicator. Here’s the thing on biotech (NASDAQ:IBB ), this was yesterday’s trade, if you’re looking at Friday down 4 percent. This is one where the bloom has come off the rose. I’m sure probably several of you are still holding biotech (NASDAQ:IBB ) and it probably ticks you off that I’m saying that now, but it’s not me it’s the chart. The 50-day moving average had been really pretty consistent support for this stock, even as it drifted a little bit shallower than it had here, it still held the stock through this high base; this was also another base. So this has been forming kind of a series of bases that have ultimately been eclipsed by higher prices.

Well this was different, we get a big move up, and this is when everybody’s talking about biotech (NASDAQ:IBB ) and it was just great. But look at money flow here; this is one by Mark Chaykin that really parses volume and closing location values on stocks over a particular moving average, he uses 21-days, so it’s a closed indicator as opposed to an open indicator. But here you can see money flow peaked on this high here. When biotech (NASDAQ:IBB ) prints a higher high but this money flow barely even registers, in fact I’d say it didn’t even register at all, that’s a pretty key indication that at least you’ve got, and this isn’t the Holy Grail of indicators, but this is a pretty good indication here that you’ve at least got to keep your stops pretty tight. When this thing breaks below the 50-day moving average, where it had always held, you’ve get out of this stuff, let somebody else who’s not as smart as you buy this dip.

Now, what about the 200-day moving average? Well, I haven’t really seen it be particularly relevant before, since 2012, but this is a pretty steep decline. By the way, once this momentum is broken it’s not like it’s just going to race up to higher highs; momentum stocks and sectors, after they’ve broken, just don’t do that, money finds its way elsewhere for various reasons. Just keep your eye on this, maybe you’re going to get a little oversold bounce here, but if you’re sitting there holding some of these dogs thinking that the markets wrong and that your ultimately going to prevail, I mean to tell you that the markets not wrong, the market is big enough to where it actually gets to define right, and if you’re big and you get to define right, then guess what, you’re not wrong.