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Seasonal Strength: Biotech & Technology

07/26/2017 2:54 am EST


Jeffrey Hirsch

Editor-in-Chief, The Stock Trader's Almanac and Almanac Investor

Seasonal trading expert Jeffrey Hirsch looks at some new trade ideas based on trends historically seen in August. Here's the latest from the market timing specialist and editor of Stock Trader's Almanac.

Biotechnology sector enters its historical favorable season in August. iShares NASDAQ Biotech (IBB) could be bought on dips below $277.00. The stop loss is $249.30 and auto sell is $349.49.

A 14.7% average gain has occurred over the last 15 years while an average gain of 22.2% has taken place the most recent 5 years.

Biotech had been hot in recent years and even though valuations are still arguably elevated, this is where growth can still be found.

It is also quite likely that this sector will play a significant part in the next secular bull market. Unlike other areas of the market, IBB spent the majority of the year plodding along until a mid-June pop.

chart 1

Over the last 15 years, High-Tech has generated an average return of 11.9%, and for the last five years the average has been 9.1% during its bullish season from mid-August to mid-January.

Our top ETF within this sector is iShares DJ US Tech (IYW). A buy limit of $124.50 and stop loss of $112.05 are appropriate. If high-tech produces above average gains, profits will be taken at the auto sell of $153.25.

IYW had been soaring ever higher since breaking out late last year until mid-June. It has since broken down below its 50-day moving average and appears to be making a beeline towards its much lower 200-day moving average just below $129.

chart 2

Buy limits for IBB and IYW are well-below current prices. We want to be patient and not rush into new long-positions.

Seasonal strength for these two sectors generally does not start until August and both appear poised for losses in the short term. It will most likely not be a straight line lower, but rather a choppy trend down.

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