So here we are, after a monster rise in biotech stocks since 2009 — for instance, roughly 360% gains in the Nasdaq Biotechnology ETF (IBB) — a more meaningful correction is finally upon us.
Click to Enlarge From a price and time perspective, the correction is now just about 20% deep and six weeks long, and IBB has reached its 200-day moving average (red line). But bigger-picture, biotech stocks are merely undergoing a very common occurrence called ‘mean reversion.”
Sadly, a new batch of investors and self-proclaimed traders that entered the market in recent years has never seen experienced the U.S. stock market (or even parts of it) undergo such strong mean-reversion moves. So, for these newbies that rode biotech stocks higher for years, this is becoming a first real test — one that only some will pass.
After not selling at the February top, many of those investors now find themselves with a conundrum where ego often trumps practicality and reason. As such, I hope to shed some light on the technical levels at which three of IBB’s largest biotech stocks currently find themselves: