After peaking in July of last year, the biotech sector ETF, XBI succumb to massive selling pressure and fell some 50% in 7 short months, bottoming in February, earlier this year. Since that time price has made a series of higher highs and higher lows advancing within a (blue) rising channel.
Recently price, once again, bounced off the upper channel resistance, this time while momentum warned of the potential for near term consolidation as negative divergence raised its ugly head for the first time since finding a bottom. Friday’s close coincided right at the critical lateral $60 support zone (note the number of prior tests (red arrows) indicating this level is a historical bull-bear battle zone) and slightly above the rising channel support and falling 200 day moving average. This is a great example of a confluence of signals.
It's put up or shut up time for the bulls right here. Another down day like Friday will push price below all key supports and open the door for further downside probing. The pattern’s target, if it should breakdown, is back at the $50 level. If the overall market wants to pile on by selling off at the same time, a retest of February’s $44 low would find the next wave of potential buyers. Biotech stock owners should be on full alert right here we are soon going find out if the current level acts as support and price reverses higher or gives way to the next wave of selling and lower prices below.