Inside the Aggressive XBI Breakout

Biotech stocks have rallied sharply in the face of year-to-date outflows, data shows

by Bernie Schaeffer

Published on Mar 4, 2019 at 9:44 AM

The technical breakout last week in the SPDR S&P Biotech ETF (XBI) was remarkable, by any number of measures. After a 3% opening gap to start Monday's session, the small-cap biotech-focused exchange-traded fund (ETF) went on to close above its 200-day moving average for the first time since Oct. 3, 2018. And then, to drive home this accomplishment, XBI closed each of the next four sessions above its 200-day trendline, and finished Friday's trading at $91.81 -- up just over 40% from its Christmas Eve closing low.

Among the other significant price points conquered by XBI over the course of last week's aggressive 200-day takeout were $86.10 (a round 20% year-to-date gain), $90.36 (the July 2015 high close), and $91.03, which marks a 10% correction from the June 2018 closing high. The latter two have been taken out only once so far -- but on a weekly closing basis, no less.

But bulls eager to bite on this breakout should be aware from the accompanying one-year chart that XBI -- as of right now, and for the foreseeable short-term future -- is staring down its year-over-year breakeven point. And the overhead $92 neighborhood previously served a non-trivial role as both resistance and support in the late first and early second quarters of 2018, which is the same seasonal time frame we're entering right now.

In light of this somewhat mixed technical backdrop, then, consider the fact that XBI's sharp, V-shaped rally from its Christmas Eve bottom has occurred in the face of $101.24 million in year-to-date net outflows for the fund (per etf.com data) -- coupled with a 17.2% ramp in short interest over the past two reporting periods. And circling back to the notion of seasonality, it's generally working in XBI's favor at the moment. Over the last 10 years, the ETF averages a return of 2.37% in March, with a median 4.87% return.

With 70% of those March returns positive, it's not a "sure thing" that XBI rallies over the next month -- but if the strong finish last week brings in enough sideline buyers to carry the fund past potential resistance at $92, then the ETF's immediate path higher should be relatively clear. That said, until year-over-year breakeven levels are left in the rearview, it's hard to say whether XBI is truly setting up for anything more substantial than a possible repeat of 2018.

xbi 200-day breakout chart


Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, March 3.

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