Biotechnology stocks are breaking out. They have been consolidating for nearly 20 months. Investors lost interest … and that is exactly what smart investors, in general, want to see in order to buy a market. That is also how bull markets start: when nobody talks about it but only a minority of investors is buying it.
Now here it becomes interesting. InvestingHaven’s research team has closely followed biotechnology, and has written extensively about it last year. The red line throughout all articles was that smart investors are not in a hurry to buy biotech, but prefer to see which direction biotech would go. This is what was published on InvestingHaven until fall of last year:
In other words, on several occasions last year biotechnology stocks were ready to break down, but eventually they did not. The market refused to go lower, and that was a very important observation, which was shared with our readers: Biotechnology Stocks Refusing To Break Down
Then, something very interesting happened in January: Biotech And Health Care Stock Market Sector Showing Signs Of Life. That was the first sign that biotechnology stocks could go higher.
Today, they are attempting to break out.
Biotechnology stocks: important insights for investors
The most interesting part was what InvestingHaven’s team wrote last year in April: Biotechnology Sentiment At Multi-Year Extremes. What Should Investors Do? Right at a time when a major breakout attempt in biotechnology stocks was at play, at a time when sentiment was extremely bullish, we wrote this:
What does all this mean to investors? Combining chart patterns with sentiment data is very useful for investors. We believe that a short term top has developed. Biotechnology needs to cool off a bit, which means a retracement is the most likely outcome for the coming weeks. The key is to watch how far the retracement will go: if prices remain within the existing pattern, above support, there is an opportunity for investors to buy the dips. As long as prices remain within the current chart pattern, it is not a good idea to short this market, unless you are a very short term oriented trader.
As a reminder, it was when IBB was trading at 280 points, in April last year, right before it fell 15 percent. Astute readers were very happy, and they keep on thanking us for our wise words.
Right now, biotechnology stocks are going through a serious attempt to break out from their 20-month consolidation period. If the 300 level in IBB holds for at least 5 consecutive days, biotech willl go higher in the coming weeks and months.