Even though the Biotech ETF (IBB) and the Biotech SPDR (XBI) represent the same industry group, their composition is very different and one is clearly outperforming the other. Nevertheless, the laggard still has a big bullish continuation pattern and this group looks bullish as a whole.
First, let’s consider the differences. IBB is dominated by large-cap biotechs because the top ten holdings account for around 46%. XBI, in contrast, is more equally weighted because the top ten holdings account for just 14.5%. IBB represents large-cap biotechs, such as AMGN, GILD, REGN, VRTX, ILMN and BIIB. XBI represents the “average” biotech and the industry group as a whole.
The chart above shows XBI with a new high in October and again here in November. The chart shows three bullish consolidations and three breakouts along the way. The indicator window shows the XBI:IBB ratio moving higher since mid March and hitting a new high this month. This shows that XBI is outperforming IBB.
The next chart shows IBB with lower highs from June to October and October to November. Even though IBB is underperforming XBI, the bigger trend is up and the large triangle is viewed as a bullish continuation pattern. In other words, it is just a rest within the bigger uptrend. Moreover, a smaller bullish pattern is taking shape within the triangle. IBB surged, formed a small pennant and is making a breakout attempt.
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