Size Matters:
An interesting pair has put on a nascent sprint higher and is the small sample size a head fake or the beginning of something decisive? I am talking about the XBI and the IWM. Below is the daily chart of the XBI which seemingly is often at some kind of “inflection point” at the very round par number. Notice the almost perfect correlation here since April at various times with both the XBI and IWM trading in tandem. This is not out of the ordinary as firstly biotechs thrive in a decreasing interest rate scenario, as they are often unprofitable and depend on that type of environment to survive. Then when one looks at the sector composition of the small-cap index, healthcare and financials are the two largest (with industrials just behind) near 18%. So one would think to monitor the Russell 2000 for a clue as to where biotech may be headed. Currently, it is sporting a bull flag formation and a break above the 225 pivot carries a potential move to the round 250 number. Notice the apprehension however there and the dubious candlesticks at the level with a big reversal on 7/17 which was well above 225 intraday but could not CLOSE above it, and the spinning top last Friday and the bearish engulfing candle Monday.