"Valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year."
That was Fed Chair Janet Yellen during her most recent congressional testimony in July, warning investors that valuations in certain sectors of the market appear “stretched.” While market pundits guffawed at taking investment advice from the head of the Fed, Brian Shannon of Alphatrends says the charts show a technical reason for investors to be skeptical of Yellen’s impressions as well.
Nasdaq Biotech ETF (IBB)
While Shannon believes Yellen may be correct about the fundamentals in biotech, the charts tell a different story. “When I look at price action we had a greater than 20% pullback in March and April [in the IBB], recovered very nicely from there, and we’re pretty close to those highs,” he says in the attached video.
Technically, it means the biotech ETF could push higher. Shannon sees a nice “cup and handle” formation in the chart, which for him is very bullish. Shannon says now is a good time to get in, with a stop put in around $245.
At this juncture, Twitter’s the more interesting chart for Shannon. From a technical perspective, Twitter’s volume weighted average price is at a make or break level. He notes that “since Twitter became public, we’re right at that volume weighted average price. They had earnings two, three weeks ago the stock gapped up, it’s holding those gains really well right now"
Shannon is bullish on Twitter, but he has a caveat. "If it can maintain above the lows of the last two weeks, I think Twitter has a better chance of continuing to the upside."
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