Monthly Archives: May 2014

Watch List: Biotech Sector Pullback

The biotech sector has had an extensive a run over the last 3 years, more than doubling its 2011 average price.  Recently, however, as you can see in the chart below, it has pulled back about 25% to $130 from its peak of $170.

xbi price pullback

As part of its decline, this sector also recently crossed the upward trend line of “higher lows” as can be seen in the chart below.

xbi biotech trend line

Breaking such a long term trend line is a fairly big deal and further decline is likely to come as technical traders start to weigh in on the negative side by shorting the stock until it hits lower “resistance” zones.

In the chart below, I put percentage drop markers at two areas of resistance beyond the recent drop.

SPDR S&P Biotech ETF recent pullback

I’m looking to start investing in this sector, should it drop into those resistance areas between $105 – $120.  I’d like to see it get back to the $90 range in the long term and that’s where I would start adding stronger positions as part of my purchasing technique.