Conclusion, Investment Implications, Strategy

The SPDR S&P Biotech ETF (XBI) appears to be resuming its March advance following 10 weeks of sideways investor indecision.  A sustained rise above 113.84 would help confirm this and target an additional 13% rise to 132.00 per share. This is an Asbury Momentum idea.

Analysis and Rationale

The SPDR S&P Biotech ETF (XBI) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index derived from the biotechnology segment of a U.S. total market composite index. The index represents the biotechnology segment of the S&P Total Market Index (“S&P TMI”). The fund is non-diversified.

Chart 1 below plots XBI daily since March, highlighting its Oct 7th breakout higher from about 10 weeks of sideways investor indecision.  A sustained rise above the upper boundary of the indecision area, currently at 113.84, would help confirm this and target an additional 13% rise to 132.00.

Chart 1

How XBI resolves this bullish chart pattern is particularly important to us because of its statistically significant and stable 10-year positive correlation to the S&P 500 (SPX), which has most recently been 0.75 over the past 6 months.  Specifically, as long as XBI remains above 113.84, it will be seen as being indirectly positive for the US broad market index.  Conversely, a decline by XBI below 113.84 would warn of an emerging US broad market top.

Table 1 below shows that considering the aforementioned upside target and a protective stop placed below the 113.84 area, a long entry price of 117.06 would provide a 1:4.6 risk/reward ratio (risking $1.00 to make $4.60) with an initial risk of 2.8%.

Table 1

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Please consult the table showing our Asbury 6 key market metrics to help determine if this investment is suitable for you.