01/24/2022
A buddy of mine asked me, “What should I do?”
My response? “Learn to short.”
I know that short selling has gotten a bad rap, much of it for good reasons, but as I explained last week, riding the trend isn’t the same as unethically taking down a company and its investors along with it…
A recent interview with Charlie Munger talked about some of this, saying that unethical strategies exist on the long side as well when individual actors prop up the stock price just to avoid margin calls.
But that’s the bigger game and an entirely different one from what retail plays…
With the current trend being down at the moment, I’m watching the sectors first and the the inverse ETFs second…
We’re taking an aerial view and going back to the dip in March of 2020.
Like all other sectors for the most part, XBI took off like a bat out of hell, eventually topping out at the turn of the previous year (sound familiar?).
Since then, biotech and healthcare stocks have been flushed to fill gaps and follow the downward spiral, remaining oversold almost in perpetuity…
The thing about buying dips is, which dip?
I’ve drawn a Fibonacci Retracement from trough to peak here, again looking for levels of support and resistance.
You can play this long and short. Simply look for breakdowns or subsequent climbing of the various levels…
But for the longs eyeing dips, XBI is nearing the 78.6% level.
This could be good for a bounce, although I’d hesitate on going long just yet and would look to longer term charts first.
An immediate return to the 61.8% mark is one thing, but a stall and eventual break below usually tells me that there is more pain to come. For me, 50% isn’t enough and 78.6% is too much…
What I’m watching are the horizontal white dotted lines denoting the previous gaps.
You already know that gaps are my “thing” and hopefully, if you’ve been reading along over the last several months, you understand why…
One gap remains right below the 78.6% with another gap at the initial breakout.
Since XBI is into oversold territory (RSI at ~28), the longs may expect a bounce from this area, albeit a short-lived one due to current market weakness…
If you want to play it both ways, a buy here followed by a short near the ~$105.00 price range per the Volume Profile to the right may be worth looking at.
Just manage the trade
Keep moving,
(Disclosure: I have no position in XBI.)
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