The first trading day for June kicked off with a bang for stocks. What particularly stood out for me was the rotation into healthcare and related stocks such as large-cap biotechnology stocks as represented by the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB). As such, the IBB ETF now offers active investors and traders a good reward to risk buy setup that also has the potential to lead to a bigger picture breakout move higher.
The last and first trading days of any given month or quarter can sometimes signal a new micro environment for stocks as money managers are forced to clean their portfolios and either re-allocate money or put fresh inflows to work. Thursday’s price action was one that I had been preparing my students and subscribers for in recent weeks, one where we see a marginal flow into healthcare and biotech stocks and small cap stocks.
Part of the money being put to work in these stock groups may be coming from some profit taking in the large-cap tech stocks we all know and love.
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In order to gain some perspective, let’s first take a look at the multiyear weekly chart of large-cap biotech land. Here we see that the IBB ETF after several years of out-performance finally ran out of steam in the summer of 2015.
From there, the ETF swan dived to the tune of 40% over the following seven months and erased half the rally that began in 2011. Like I always say, stocks that rally too steeply ultimately also mean-revert at an increased speed.
Since early 2016, the IBB ETF has largely traded in a bigger picture range-bound fashion as it continues to consolidate the sell-off from 2015. The lower end of this consolidation phase is well supported by the red 200 week simple moving average, which is a great intermediate term reference points for the bulls and bears alike.
On the daily chart, we see that earlier this week on Wednesday, the IBB etf tried its best to break below the red 200 day simple moving average however by day’s end rallied back up and closed in the green for the day. This was followed yesterday by strong follow-through buying day to the tune of 1.80%. This led my B2 Reversal Indicator to flash a buy signal by marking the chart with a green up arrow.
To be clear, the IBB remain in a bigger-picture consolidation phase as indicated on the chart above, but the B2 Bull Reversal of the past two days does now look to target the ETF toward $300 as a next upside price target. Last resort stop losses can be applied around the $284 mark on a daily closing basis.
If and when the IBB can break and hold above the $300 mark it would constitute a larger breakout move that could also resume the longer-term uptrend in the ETF.
Check out Anthony Mirhaydari’s Daily Market Outlook for June 2.
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