Like so many speculative growth ETFs and stocks, the S & P SPDR Biotech (XBI) ETF is nowhere close to its former all-time high from early 2021. It’s currently 45% below its 2021 peak, and with the S & P 500, Nasdaq and many large cap growth indices making new all-time highs, this makes XBI stand out for all the wrong reasons. It hit a low of $61.80 on May 11, 2022, which is more than two years ago. It rallied from there but peaked three months later. And by 10/31/23, XBI had fallen all the way back to 63. Seeing a near 100% retracement during a very strong period for equities was very discouraging. Even though the ETF now is up considerably from that point, many traders still have wanted nothing to do with it. We can understand why, especially when so many other stocks surpassed their respective former highs many months ago. However, looking only for stocks and ETFs that are making new highs sometimes prevents investors from discovering areas that are forming constructive technical patterns. XBI is one of these. First, let’s look at the weekly chart. XBI tried to break out from this multi-year pattern earlier this year, but that attempt was short-lived. However, by bouncing again over the last few weeks, it has gotten back above the $91-breakout zone. Continued strength would keep alive the bullish formation and upside target near $118. As the chart shows, that level lines up with the 50% retracement of the entire February’21 – May’22 decline. For that long-term bullish pattern to play out, we’ll need smaller versions to work first. This already started to happen. Back in late November’23, XBI broke out from an inverse head & shoulders pattern and leveraged a positive momentum divergence (using the 14-day RSI), hitting its first upside target near $78 in short order. Recently, XBI has formed a similar bullish chart setup, which also began with a positive momentum divergence. The upside objective from this breakout is up near $103. Seeing the RSI hold near the 50 zone on prospective weakness will be important once again. This occurred from November all the way through early March, supporting the upswing. The next two charts show how a long-term trend shift could be just getting started. First, here are XBI’s 50-day (blue) and 200-day moving averages (red). The vertical blue lines depict when the 50-DMA crossing OVER the 200-DMA led to strong and extended upside follow through. Indeed, there were instances when this did NOT work, as well, so nothing is guaranteed. But if bullish patterns continue to work, the 50-day line will remain above the 200, which is a key uptrend trait. XBI’s initial burst from the October lows produced a nine-week gain of 39%. XBI only had four previous 9-week gains of at least +30% before that: twice they marked trading tops (2019 and 2022); the two other times, a lot more upside resulted (2012 and 2020). As is always the case, it’s all about the reaction to the next real pullback. And, so far, the period following the recent big nine-week move looks similar to what happened in late 2020. Specifically, XBI’s recent 9-week rate of change after the spike hit 11.8%, which is pretty close to the 9.1% pullback from 2020. Back then, XBI regrouped and soon began another strong up-leg. The ETF will be trying to do the same again now. As the saying goes, history never repeats, but it often rhymes. It’s been a challenging few years for XBI, but as these charts show, the blueprint for a continued comeback is there. XBI just needs to keep following it. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
