Biotech ETF Double Top Drop To Technical Support

The SPDR S&P Biotech ETF began its departure from the bearish double top around the beginning of May. Typically the stock drops toward its last strong support level , and most times drops below that as well. Currently, the stock has been trending down, but is yet to make it to this shared support at 66.30. With the gains for the ETF on June 1, it could be an excellent time to setup a short position.

When we take a look at technical indicators, the relative strength index ( RSI ) is at 51.3469. RSI tends to determine trends, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. Currently the RSI is neutral. The ETF could move either direction but may not be prone to volatile swings.

The true strength index (TSI) is currently 0.4073. The TSI determines overbought/oversold levels and/or current trend. I solely use this as an indicator of trend as overbought and oversold levels vary. The TSI is double smoothed in its calculation and is a great indicator of upward and downward movement. The TSI is pointing down and the 50 day moving average for the TSI has been on top and parallel for at least two weeks. This is an indicator the ETF could continue its overall downtrend.

The positive vortex indicator ( VI ) is at 0.9448 and the negative is at 0.9331. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward. These indicators have been in a tight channel and are both below 1. The first indicator to cross above 1 could be the prevailing direction in which the ETF will move.

The stochastic oscillator K value is 28.7305 and D value is 35.2426. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The stochastic is currently trending down, but has at least five days until it could reach oversold territory. This will be the key indicator to watch on when the potential bottom of the downward movement is reached.

Considering the RSI , TSI, VI and stochastic levels, the overall direction favors a move to the downside. Based on historical movement compared to current levels and the current position, the stock could drop at least 4% over the next 19 trading days if not sooner.
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