Take a look at the Nasdaq Biotech ETF (IBB) chart from the end of February until now and you’ll see a visual depiction of the word ‘agita.’ Traders playing this high-flying stock have been hitting the Pepto-Bismol heavy and hard, and the question is whether there’s relief in sight.
Legendary chartist Louise Yamada of LY Research Advisors has seen some of these “parabolic” formations before, and when high-flying stocks do come down, they come down pretty hard.
In the attached video, Yamada does note that most stocks, even the high-flyers of the world, will give you some technical clue as to where they might be headed next.
Another high-flyer to keep an eye on is Netflix (NFLX). “It’s trying to grip above $300, it could rally back to the 50-day moving average which could take it back up to $400 and then that’s where you have to be careful.” Keep in mind there’s a huge stock moving event coming up for Netflix, with a crucial earnings report out tonight after the bell. Last quarter Netflix shares jumped as much as 17% after a strong earnings beat.
Looking at the Biotech ETF (IBB), Yamada says were seeing a classic Christmas Tree Formation. “You never know how far a parabolic can go up but you do know is when it does come down it’s going to hurt.”
That being said, she says there’s some light at the end of the tunnel. “Now you’ve had a 25% decline in the (IBB), and I think here you could get a rally,” she says. “You could go back up to the 200-day moving average, which for the (IBB) comes in around $244.” She notes that once a stock like this has had a 25% decline, you will at least see some “repair” in stock that went down too far, too fast. Don’t get too greedy, though, as Yamada advises using any future rally as an opportunity to take profits.
With the high-flying parabolic stocks, Yamada says to be very careful (i.e., maybe stay away), as she would “prefer to see a more sustainable stabilization take place.” When examining stocks like Netflix and the Biotech ETF, unfortunately terms like ‘stability’ aren’t necessarily the first words that come to mind.
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