It took a move of more than 70% in shares of Vivus (NASDAQ: VVUS) to get the stock market
punditry to pay attention to some of the amazing, positive things going on in the biotechnology sector.
Fortunately, for those of us still focused on buying short-term weakness and selling short-
term strength, the attention spans of most of those in the financial media is such that we can
count on their forgetfulness to again provide oversold and overbought extremes in these and
other stocks in the market.
The most recent panic over the plunge in shares of Gilead Sciences (NASDAQ: GILD) likely blinded many traders and active investors to the potential opportunities for
pursuing sector-wide weakness on the long side. For example, the iShares Nasdaq Biotechnology Index Fund ETF (NASDAQ: IBB) pulled back for three consecutive days in mid-February, closing in technically oversold territory for each session as traders sold biotech en masse in the wake of negative news about Gilead’s hepatitis C drug. And this sell-off provided classic opportunities for short-term traders and active investors to take advantage of the over-reaction.
Traders who bought IBB as it earned “consider buying” ratings of 9 out of 10, and then
added to their position when the ETF closed lower – and earned a further upgrade to our
highest, 10 out of 10 level, were able to take long positions at some of the lowest levels of
the sell-off. Additionally, traders did not have to wait long to lock in gains. Just one day
after earning our highest, 10 out of 10 rating, the iShares Nasdaq Biotechnology Index Fund
ETF was up more than more than 2%, closing above its 5-day moving average and back in short-
term overbought territory.
Note that a similar pullback and major ratings upgrade took place in the S&P Biotech SPDRS
ETF (NYSE: XBI). One difference with XBI is that this fund earned a “consider buying” rating
of 8 out of 10, rather than a 9 out of 10 as with IBB, before earning the 10 out of 10 upgrade
on the correction low of February 22nd.
To learn more about trading exchange-traded funds using scale-in strategies like these,
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