As previously mentioned, the NYSE-Arca Biotechnology Stocks Index ($BTK) has been one of the strongest stock sectors leading the recovery rally in place since March 23. The chart above that begins on January 2, 2018 shows it posting a new all-time daily and weekly-close price high this past Friday at 5,828.We should take note of the fact that the $BTK Index never broke below its previous intermediate-term weekly-close low at 3,940 from December 21, 2018. In fact, its March 20, 2020 weekly-close low was a successful re-test of that December 21, 2018 low. Technical indicators above and below the price chart confirm this interpretation.
The biotechnology company stocks are a favorite price momentum play of the mostly short-term oriented and speculative accounts that have been driving their prices upward since March 23. One never really knows how far up in price their chase after upward price momentum will take a stock and a “hot” stock sector. The $BTK Index could very well continue adhering to the steeply upwardly sloped trend line we have drawn on the chart that connects its February 21 and June 19, 2020 rising high weekly price closes. However, we also know that one day this momentum chase will come to an end. When it does, the chart history shows that the $BTK Index has fallen both rapidly and far, from September 28, 2018 through December 21, 2018 and again from February 21 through March 20, 2020. Stonehenge Analytics therefore cautions longer-term and more investment-oriented accounts that the time for them to buy into this very strong stock sector is at or near to the conclusion of one of these rapid and steep sell-offs, not near to the top of the price momentum chase upward. Our opinion is that longer-term investment-oriented accounts would be wise to exercise patience and wait for a sell-off that takes the $BTK Index down at least to a re-test of its May 1 daily-close price low at 5,023. That downside target is below the Friday closing price of 5,828 by -13.8%.
Long-term investment-oriented accounts can participate in owning the biotechnology stock sector using the SPDR S&P Biotechnology Stocks Sector ETF, ticker XBI. It also set new daily and weekly-close price highs this past Friday at $108.85/share. Its daily-close price low made on May 1 was at $90.83/share. This downside target price is below the Friday closing price by -16.5%.
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