Green in the sea of red: Biotech (2)

Summary

This week we are sharing 2 rebound trade opportunities in healthcare and biotech, XLV and XBI, which are showing relative strength against S&P500 and Nasdaq, making them better candidates to trade for rebound.

Since the beginning of 2022, skyrocketing inflation and increasing recession risk have pushed the broad equity markets to the downside. S&P500 is down more than 20% from peak, while the more tech heavy Nasdaq is down close to 30% from peak as of today. If we look back the whole rally, it all started during Mar-2020 as the Fed reacted aggressively toward covid by massive money printing (i.e. quantitative easing). In fact both S&P500 and Nasdaq are now getting closer to the 250 weeks moving average, which is approximately where the post-covid rally had broken the pre-covid peak. Rebound is very likely to happen as “where it started” is usually a strong resistance level that slows correction.

S&P500


Nasdaq100


To execute this trade, instead of directly longing the indexes, healthcare and biotech sector ETF, XLV and XBI are showing relative strength against S&P500 and Nasdaq100, which make them better candidates to trade the idea. Fundamentally speaking, we believe the reason behind the strength is due to the irreversible trends of aging population across the globe especially among developed countries; as well as in the seemingly more frequent pandemic outbreaks during recent years. Both trends create steady demand for healthcare and need for biotechnological innovation. The MRNA technology is a good recent example to illustrate the importance of biotechnological innovation in fighting pandemic.

We recommend more conservative traders to execute the idea with XLV (link here: tradingview.com/chart/XLV/79P13Fxd-Green-in-the-sea-of-red-Healthcare-1/), while more aggressive traders can go with XBI (this post) which is relatively volatile.

Note: XBI also come with 3X leveraged ETF LABU (bullish) and LABD (bearish) for those who are looking for more leverage with same amount of capital

Technical

The 250 days moving average of XBI is pointing downward, and it is currently trading below the 250 days moving average, which confirms the down trend is still effective for XBI. Benchmarking with QQQ (Nasdaq100 index ETF), although both are in similar down trend, XBI 20 days moving average has already crossed the 50 days moving average while that of QQQ still running below, which shows stronger confirmation of the rebound for XBI than QQQ.

Here are some important level one should pay attentions to:

Downside support

• 72.55: Jun-30 retest low after breaking 50 days moving average
  
• 61.78: May-12 52 weeks low
  

Upside resistance

• 84.63: Jul-8 high after breaking 50 days moving average
  
• 97.19: Apr-5 high before creating new low on May-12
  
• 118.23: 2021 May-10 consolidation bottom, which was broken, retested and continued to the downside during 2021 Nov to Dec