Fri, December 17, 2021 | 6:44PM ET

Biotech on the Comeback Trail

FS Insight Team

Technical Strategy Video:

Key Takeaways

Trends & momentum remain negative for US Equities and could weaken further into next week ahead of the long-awaited December bounce & start of the Santa rally

Flat Breadth is far better than Tape action would imply Friday given strength in Healthcare, Real Estate, and Communication Svcs. Technology weakness not too severe but is being overshadowed by large-Cap “FAANG” weakness which is lagging the broader market

Biotech starting to show relative strength and can bounce as part of a mean reversion play within the strengthening Healthcare group into 2022

Friday’s ^SPX pullback to the lowest levels since early December makes a rally back to all-time highs still a bit premature, technically speaking. The early weakness did manage to make a stand near 4600 which will be incredibly important to hold heading into next week. Any breach of this level has little to no real support until 12/3 lows near 4495-4500 but is thought to have an outside chance of breaking this level which should prove temporary. The big zone of support for SPX comes in at 4360 up to 4410 and is thought to be an area to buy, if hit anytime between 12/22-12/24. Moving straight higher from here is thought to be unlikely right away, but would be given consideration on any move back over 4732.

$QQQ also took a turn for the worse Friday and by the close had largely erased much of the prior week’s gains. As daily charts show below, prices gapped down under Tuesday’s lows of this week, which put this down at the lowest levels since early December, on an intra-day basis as well as a daily close.

Looking back, Thursday’s gains failed to ever make sufficient progress to break out of the minor downtrend/consolidation from mid-November. Furthermore, momentum remains negatively sloped and NASDAQ Advance/Decline line has dropped to the lowest levels since Spring 2020.

While Technology in relative terms has held up vs the S&P on an intermediate-term basis, there’s been some definite evidence of Large-Cap “FAANG” turning lower on a short-term basis which might persist into late next week before a bounce gets underway.

Bottom line, QQQ is negative until/unless 400 is surpassed. Meanwhile, any failure to hold early December lows at 378.90 early next week could drive this temporarily down to 371, with additional (But probably unlikely) Targets at 360. As much as market participants want stocks to move higher into new year, there’s not much likable about Fridays Triple-witching activity that suggests US equities are ready to start moving higher just yet.

Biotech on the Comeback Trail, & Mean reversion has started within Healthcare

Biotech finally starts to be showing signs of bottoming out near-term, (XBI) -SPDR S&P Biotech ETF) and bounces into January look likely as part of a mean reversion play in a group (Healthcare) that’s really starting to act well and fire on all cylinders.

XLV was the top performing sector of this past week, rallying 2.48% while over half the sectors finished negative. While Biotech has lagged groups like Pharma, Medical Devices and Medical Services, this week’s price action is quite constructive in thinking this is making a good short-term bottom.

Prices on XBI broke its downtrend from November this week and as of Friday 12/17 close, managed to finish at the highest levels since early December. This was higher by an additional 2.19% today

Preferred Technical stocks within Biotech include REGN, GILD, AMGN, MRNA, BNTX, VRTX, ALNY, ROIV, and OPNT. Meanwhile, ARNA’s rise on 12/17 puts this back on the watchlist after weeks of underperformance. Overall, this group should be favored in the weeks ahead and getting back above 120 in XBI would be a very attractive development for this bounce to extend on an intermediate-term basis and not just prove short-term in nature.

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