Three different biotech ETFs, three bearish signals with high confidence
The biotech sector has been trending lower for the last five months, but has seen a bit of a rally over the last few weeks as investors appear to be making a shift from growth stocks to value stocks. Because of this rotation, many stocks in the sector are in overbought territory, at least on the daily charts. When I ran my nightly scans on Thursday night, I found three different biotech ETFs on my bearish scan and then I found that all three had seen bearish signals generated by the Tickeron Trend Prediction Engine.
The iShares Nasdaq Biotechnology ETF (Nasdaq: IBB), the Direxion Daily S&P Biotech Bull 3x Shares (AMEX: LABU), and the SPDR S&P Biotech ETF (NYSE: XBI) are the three ETFs appearing on my bearish list.
Let’s look at each one individually. The IBB has been trending lower since early April and a downward sloped trend channel has formed in the last five months. The fund just hit the upper rail of the channel and that upper rail is in the same vicinity as the 50-day moving average.
The daily stochastic readings are in overbought territory and made a bearish crossover on September 19. The bearish signal from the Tickeron Trend Prediction Engine came on September 17. The signal shows a confidence level of 71% and it shows that 85% of past predictions on the IBB have been successful. The signal calls for a decline of at least 4% within the next month.
In addition to bearish signal from Tickeron, the technical analysis overview shows that the price moved below its 50-day Moving Average, which indicates a reversal from an uptrend to a downtrend. In 35 of 40 cases where IBB's price crossed below its 50-day Moving Average, its price fell further within the subsequent month. The odds of a continued downtrend are 88%.
Turning our attention to the leveraged LABU fund, we see that it peaked around the same time as the IBB. There trend line connecting the highs is cleaner than the upper rail of the channel on the IBB, but there isn’t a parallel lower rail that would form a channel.
Like we saw on the IBB chart, the daily stochastic readings for LABU are in overbought territory and made a bearish crossover on September 19. The Tickeron Trend Prediction Engine generated a bearish signal on September 17 as well. The signal for this ETF showed a confidence level of 80% while past predictions have been successful 97% of the time.
Additionally, the Tickeron Technical Analysis Overview shows that the higher Bollinger Band was broken. A price fall is expected as the ticker heads toward the middle band. In 37 of 38 cases where LABU's price broke its higher Bollinger Band, its price dropped further during the following month. The odds of a continued downtrend are 90%.
Finally, the chart for the XBI looks a little different from the other two ETFs. Yes, the fund peaked in April, but it has seen a trend channel form over the last three months and it just hit the upper rail of the channel this week. Like the IBB channel, the upper rail of the XBI channel is in close proximity to the 50-day moving average.
As we saw with the other two, the stochastic readings are in overbought territory and made a bearish crossover, and we have the bearish signal from Tickeron on September 17. The signal for the XBI showed a confidence level of 75% and past predictions were successful 90% of the time.
For the XBI, there were several other bearish factors on the technical analysis overview. First, the fund moved above its higher Bollinger Band on September 11, 2019. This price move signals that XBI may fall back below the higher band and head toward the middle band. In 39 of 43 cases where XBI's price broke its higher Bollinger Band, its price dropped further during the following month. The odds of a continued downtrend are 90%.
On September 12, the 50-day moving average crossed below its 200-day moving average and that indicates a sell signal, due to the trend repositioning lower. In 3 of 3 cases where XBI's 50-day moving average crossed below its 200-day moving average, its price fell further within the subsequent month. The odds of a continued downtrend are 90%.
And like we saw on the IBB, the XBI saw its price drop below the 50-day moving average, which indicates a reversal from an uptrend to a downtrend. In 36 of 42 cases where XBI's price crossed below its 50-day moving average, its price fell further within the subsequent month. The odds of a continued downtrend are 86%.
Momentum Indicator for IBB turns negative, indicating new downward trend
IBB saw its Momentum Indicator move below the 0 level on December 11, 2024. This is an indication that the stock could be shifting in to a new downward move. Traders may want to consider selling the stock or exploring put options. Tickeron's A.I.dvisor looked at 90 similar instances where the indicator turned negative. In of the 90 cases, the stock moved further down in the following days. The odds of a decline are at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Moving Average Convergence Divergence Histogram (MACD) for IBB turned negative on December 13, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 50 similar instances when the indicator turned negative. In of the 50 cases the stock turned lower in the days that followed. This puts the odds of success at .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where IBB declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The RSI Oscillator points to a transition from a downward trend to an upward trend -- in cases where IBB's RSI Indicator exited the oversold zone, of 27 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. of 60 cases where IBB's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where IBB advanced for three days, in of 331 cases, the price rose further within the following month. The odds of a continued upward trend are .
IBB may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
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