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Biotech and Tech Stocks Are Approaching Make Or Break Moments
The stock market picked right up from where it left off last week, with the S&P 500 continuing to surging to 2,721 up about 1.1 percent today. Based on the charts, it seems like we have a pretty good shot of continuing to rise to somewhere between 2,740 and 2,760 before we see a significant region of resistance again.
I still think 10-year treasury rates continue to decline, and I still believe we see a push down back towards 2.6 percent. The chart has turned, and it seems a new trend lower has formed.
The inflation number to watch this week will be average hourly wages released during the Job report on Friday morning. According to Bloomberg, estimates are calling for y/y hourly wage growth of 2.9 percent, and consensus is in a range of 2.8 to 3.0 percent.
The NASDAQ Biotech ETF IBB has an unusual setup in the chart, with resistance at $111.50. The formation doesn’t look the greatest. In fact, should it the ETF fail again to rise above $111.50 I would grow very concerned about the future direction of the group.
The same setup is confirmed in the XBI as well. what had once been a promising year is beginning to look worrisome.
It is always important to watch how stocks “act” in a big up day, especially when there is buying across all the sectors. But look at what stocks hardly budge. Celgene, Biogen, and Gilead. Only Amgen performed well of the big biotech names, and that seems concerning. It likely means all the sellers have not been shaken out of the group yet.
Biogen shares are trying their hardest to bottom. The relative strength index (RSI) is near oversold levels at roughly 33. There is a slight hint of the RSI starting to trend higher while the stock price continues to test the lows, which could be a bullish divergence. But it may be a bit to early to say for certain.
The technology ETF (XLK) has the making of what appears to be a double top. It makes the $69.25 level of critical importance. The RSI has been trending lower for sometime with a series of lower highs, and lower lowers. Again, we need to see the XLK continue to rise, in the near-term, and rise above $69.25.
Apple has the making of a similar double top, although it is not nearly as pronounced as the XLK.
Microsoft is another example, with the same double top setup. It makes the $95.25 level extremely important for the stock. Notice how the RSI has been trending lower, while volume has been steadily declining. To confirm a breakout at $95.25 we need to see a meaningful surge in volume. On the other side, should MSFT fall below $85, it would likely be confirmation of the double top pattern.
The biggest problem is that NASDAQ 100 is exhibiting the same pattern.
One stock that has broken out is Micron. I noted over the weekend the importance of $50, and it easily broke out today, surging by nearly 6 percent. Notice how volume surged and has been steadily increasing since early February, along with a rising RSI. As we have noted it before, the stocks next stop could be around $58.
Netflix is also in breakout mode, with its shares climbing today as well, and are now at $315, up nearly 4.5 percent. Notice again increasing levels of volume, and an RSI trending higher. The stock got another price target upgrade today, this time it was Macquarie. The firm raised it price target to $330 from $276.
I hope I was able to show the subtle difference in the charts, and why I have some level of concern and will be keeping a very close eye on things.
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Michael Kramer and the clients of Mott Capital owns shares of NFLX and CELG
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
© 2018 Mott Capital Management, LLC. Use, publication or reproduction in any media prohibited without the permission of the copyright holder.
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