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Monday, September 28, 2015

Daily update 9/28 Biotechs crash more

Wow, IBB down another 6%.   In Daily update 3/20 Biotech bubble and Fisher says stocks hyper overpriced  I wrote

"The trouble with parabolic moves up like IBB has made is they always seem to end in a crash.  Everybody piles in slowly, but they all want out at the same time.  There are some fine companies in the biotech space along with the junk.  During a crash they throw the baby out with the bath water.  If history is any guide many of those fine companies will see their stocks seriously hurt.  The junk will end up going out of business.

If the biotech sector is about to top and crash will it take the broad market down like NDX did in 2000-02?  It certainly has the potential.  Last spring when the sector had a correction there were quite a few times when it dragged SPX down with it.  I even commented on it in the blog on numerous occasions.  I think I will have to keep an eye on this one for a while to see what happens."

The bubble has popped and it appears to be taking SPX and the rest of the market with it.  Yesterday's volume looked very big in IBB until today's bar was added.

Today was the first day of this decline that it looked like people were really anxious to sell.  The downside volume was 95% of the total volume.  Volume was not particularly high though.  Buyers put their hands in their pockets today.  The 1885 support level stems from an area of resistance back in the spring of 2014.  Will it hold or will it fold?

The futures were actually up 9 points in the night from the 4 PM Friday close.  Once Europe opened and sold off it was all over for the U.S. bulls.  We are getting close to the Aug. lows.  Curiously the ADX is staying low.  That is different then other declines we have seen this year.  That might help the bulls get a successful retest.

Most of the time the down volume being over 90% makes a short term bottom.  However, we had 94% on 8/21 and it was followed up on Monday with the futures limit down.  If we don't bounce tomorrow then another big down day is likely.  The TRIN closed at 2.17 which is often good for a bounce.  It was not high enough to signify major panic.  Was today another mini capitulation that leads to a multi day bounce or the beginning of a mini crash?  The first hour tomorrow will be important.  It could be either one from what I can see.

While I don't know exactly how this retest will play out.  I do know one thing.  So far we have not had enough strength to signal that we are in the process of making a bottom that will lead to new highs in SPX.  However, there seem to be a lot of people just waiting for the retest of the low to start buying.  Many people are convinced this is yet another pullback in a bull market.  That could lead to a significant bounce on a full retest of the low even if it does not end up being a major bottom.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.