Betting on a biotech slump... April 30, 2015 Archives | Unsubscribe Investors Are Jumping off the Biotech Bandwagon - Here's What to Do Now Betting on a biotech slump 3 reasons to get cautious Plus: Brainwashed by the perfect trade Greg Guenthner coming to you from Baltimore, MD... Wait-- is that the sound of that famous biotech bubble finally popping? Can't say, dude. But biotechs are definitely losing steam these days, and the worst could be yet to come. Today, I'll show you exactly what to do about it... We took profits on our big biotech trade earlier this month, booking double-digit gains on Biotech iShares (NASDAQ:IBB). IBB thundered nearly 21% higher year-to-date while the S&P 500 was only up about 2%. But we didn't pick up our marbles and go home because we thought the biotech boom was out of fuel. We just thought our trade was getting a little ahead of itself, that it might need a breather before heading north again. Big difference. And for the record, I'm not writing biotech's obituary today. There's no way to predict exactly how far these stocks will retreat. But they are slowing down--and it looks like investors might be jumping off the bandwagon. Take a look at this chart of the S&P Biotech Index ETF: I've numbered three important parts of this chart you must not ignore. These are the signs pointing to a potentially significant biotech pullback. Let me break it down for you: 1. XBI posts lower highs This month's rally failed to top March's highs. That's a sure sign momentum is fading. We want to see rallies bigger than their previous pullbacks or consolidations. But this time biotechs just couldn't fight the selling... 2. Support is busted Ever since this sector kicked into gear last fall, its 50-day moving average has been the perfect "bounce zone" for biotech stocks. This sector threatened to dip below its 50-day moving average in February and March--but managed to stay above that critical mark. This week's been different, though. Biotech stocks couldn't catch a bounce Tuesday or Wednesday. They're now solidly below this 50-day support zone. Bearish! The sellers just keep on comin'. Speaking of which... 3. Investors are running for the exits If you turn your attention to the volume bars at the bottom of the chart you can see massive trading Monday, Tuesday and Wednesday this week. The market is dropping, traders are spooked, and they want out. You can also see that volume on down days (the red bars) has been the strongest since late last month. That's not bullish, my friend. So there you have it: three solid reasons to remain cautious in the biotech sector for the time being. If you have a ton of exposure to these stocks, you should consider lightening up this week. As I said, the big biotech bull might not be over just yet. But it is showing signs it needs an extended break. Be careful out there! 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Stocks are staring at another lower open today as this week's retreat from the highs continues... Rude Trends When to Buy... When to Sell "Thanks for some good perspective-- a reality check in today's post," a reader says regarding Monday's column containing three steps to keep the stock market from driving you insane. "I've seen many pundits admonish me to 'print this out and post it next to your monitor'. I will actually do it with today's Rude." I don't exactly think of myself as a pundit, but I think you're right... Talk to some successful traders, and you'll find that most (if not all of them) have some sort of a rule book handy at all times. They might not post it next to their monitor, but it's within reach of their trading station or right on their desktop. It's amazing how a "perfect trade" can completely brainwash you. All you see is the stock. You rules? Poof. Out the window. If this happens to you, posting your trade requirements somewhere visible is probably a good idea. [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner] Ignore At Your Own Peril Today's Must Read Links You Will Never Look at the Church the Same Way Again [Must Read] The 4-Letter Word That Could Kill You Have You Seen What Could Become America's Spooky New "Money"? BE SURE TO ADD rude@agorafinancial.com to your address book. Additional Articles & Commentary: Join the conversation! Follow us on social media: The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from The Rude Awakening, click here. Please read our Privacy Statement. For any further comments or concerns please email us at rude@agorafinancial.com. 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