The media has been talking about “new leadership.” Today I would like to discuss “old leadership” and why, from a Power of the Pattern perspective, we think that a leading sector is testing a key level, which could impact the broad markets.
What this leader does could be huge for the next big move in the broad markets. Below compares Bio-Tech ETF (NASDAQ:IBB) with the broad markets, since the 2009 lows.
From the 2009 lows until 2015, IBB lead the broad market higher at (1). Once IBB started turning weak in the summer of 2015, IBB and SPY were both weak at (2). Once IBB hit a low in February 2016, IBB and SPY both rallied at (3).
Now IBB is testing the top of its range and falling resistance at (4). This represents a key breakout test for IBB.
Risk-on trade in the broad markets wants/needs leadership to breakout at (4). Risk-on trade does NOT want to see IBB create a reversal pattern and turn weak at this key test.
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