It's like déjà vu all over again – Are biotech’s in trouble?

Yogi Berra, one of baseball’s best catchers and unquestionably its greatest philosopher said while watching Mickey Mantle and Roger Maris repeatedly hit back-to-back home runs in the Yankees' seasons in the early 1960s “it’s like déjà vu all over again”.

The darlings of this bull market, the biotech’s, had their largest pullback, a nasty 25% correction, earlier this year. When looking at the chart of the Biotech etf, IBB, it should have come as no surprise that a correction was due, the only question was how big was it going to be. We had 2 successive closes outside the Keltner channel (highlighted with the red circles) while creating negative divergence on our RSI momentum oscillator.  Closes outside the Keltner channels, like the Bollinger bands are infrequent and should not be ignored.

Fast forward to today and you can see we have the exact same setup.  2 successive closes outside the Keltner channels which have created negative divergence on the RSI momentum oscillator. The only difference this time is that you can see today’s price is stalling at the resistance level (red horizontal bar) back at the all-time highs created just before the last correction.

There are no guarantees a correction will occur this time as it did in March, but considering the current setup, this is one that warrants further attention. In the inimitable words of Mr. Berra, "You can observe a lot by watching”