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Biotech's breaking retracement

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The biotech's and the Biotech Index (BTK.X) were one of our "key" sectors for the NASDAQ that we felt needed to hold tough near the $550 level a couple of weeks ago for the NASDAQ to hold strong, but that hasn't happened. Today we're seeing the BTK.X trade at a level on our retracement bracket that quickly became a bearish target once the point and figure chart broke down at the $540 level. From here, bears will be targeting the $438 level.

Biotechnology Index Chart - Daily Interval

Bears may want to buy some weakness to lock in gains, but bulls looking for an entry point may want to wait for some type of consolidation and give the MACD indicator a chance to smooth out. In past months, the BTK.X did show some resiliency at the $494 level, but was overcome with selling at that level on September 17th just after the terrorist attacks in the U.S. I'm looking for some support at current levels as this was our early bearish target. If the biotechs can firm up here, then I will begin looking for the NASDAQ to also try and firm up in coming sessions.

The biotechs are NOT what I would consider an "economically" sensitive sector. I do consider them a better pulse on how aggressive technology investors are as the group trades more on expectation of new drug discoveries than it does fundamentals. bulls will be active in the group when their investment confidence is higher and will sell the group when confidence is down.

Jeff Bailey
Senior Market Technician
Option Investor

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