The set-up: It’s hard to find a sector that isn’t stretched to the moon and giving good trade scenarios right now – and it has been this way for a while – but you go where the right chart is and right now that means biotechnology.

The iShares Nasdaq Biotechnology ETF (IBB) is giving a nice defined entry point here on solid support.

The chart:

The IBB has pulled back to a solid support trend line and is short-term oversold based on the Relative Strength Index ( RSI). I’d be looking to buy it here – while it is in the $314 – $315 range so long as it doesn’t break support.

You can see the last time this happened at the start of this chart; notice how the IBB rebounded out of oversold about a year ago, and the RSI is giving an even-stronger signal now.

The play: I think IBB trades back to its 50-day moving average, which is around $330, and I would set my stop-loss below the trend line, which means $312. That gives us about a 15-point reward with risk of just two or three points.

I’m not playing it because I don’t trade indexes, but my colleague Jeff Bishop of is looking at options on IBB and leveraging it with the Direxion Daily S&P Biotech Bull 3X ETF (LABU) and I trust his strategies here.

Listen to Jeff Bishop talk about why he is watching biotech and the IBB


Jason Bond runs and is a swing trader of small-cap stocks.

Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of and the Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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