I wrote about why I wasn’t going to allocate much to the space a few weeks ago.   Two things have happened since then.  Speculators have poured into the names bidding up anything and everything and the leaders of the NASDAQ have started to trade poorly.

Speculating here when the leading stocks in the NASDAQ all trade like shit screams elevated risk.  Bears are capitulating and craving ways to catch up in performance.  Small cap biotech is one of the easiest ways to do that.

So, they piled into biotech Monday morning on the first sign of weakness.  The relative strength faded quickly.

xbi intra

Say you do find a great setup to speculate in.  I turn back to ALNY.  It was such a great chart and if you bought looking for a breakout on higher data you essentially got mugged as the stock dropped 20% before this thing ripped like hell.  When markets are acting like that, it is a signal.  This just isn’t a great game for a prudent speculator to play.

alny

Check out AXON.  This thing was trading at the high end of its range after a breakout last week.  Today it’s a single digit stock after some bad trial results.

axon

If you’re playing a game of risk vs reward and measuring value of potential outcomes, biotech is a strong avoid.

If you’re looking to short biotech ETFs for a swing and positioning in a larger timeframe, we want to see a lower low in XBI confirming Monday’s lower high.  Otherwise, according to Edwards and Magee on broadening patterns, there is no trade.

Trade ’em well