On the 4th of August, 2021, I wrote about the strength in the IBB and the bullish setup in GILD.

At the time, GILD was trading below $70, consolidating in a bullish pennant, and I wrote:

It appears I was right on the money as GILD proceeded to break out and achieve a high of $73.34.

The stock is now consolidating over previous resistance, which is a sign of strength. So could GILD be poised for further upside?

With a significant weighting in the IBB, it’s essential to look at the ETF and sector to identify potential relative strength or weakness.

The IBB

The biotech sector experienced a healthy pullback last month. The IBB traded right into significant support before bouncing. The uptrend held firmly, and bulls provided the support necessary to confirm a higher low and keep the bull thesis intact.

Yesterday, the IBB closed the day up 1.03%. The ETF is up 14.90% year to date and 30.85% over a year.

The IBB currently has a bullish chart pattern, as the stock continues to consolidate near the all-time high. $175 is critical resistance in the ETF. Therefore the bulls will want to see shares hold above $175. Over $175 and holding firmly, the all-time high of $177.37 will come into focus.

This strength in the biotech sector bodes well for GILD.

Comparing IBB to GILD

In the chart above, I have overlaid the IBB chart with GILD. GILD is represented with the pink line.

If you would like a re-cap on relative strength and weakness, check out this article I wrote last month explaining the concept.

From this comparison chart, I can see that GILD and IBB are correlated. This is no surprise as GILD holds a 6.42% weighting in the ETF, making it the third-largest.

In recent times, however, GILD has outperformed the ETF and shown relative strength.

This is a sign of strength for the stock and might give further confidence to the GILD bulls.

Gilead Sciences (NASD: GILD)

Per Yahoo, GILD, a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.

Shares of GILD are up 8.11% on the quarter, 23.36% year to date, and 9.18% over a year.

The stock has an average target price set by analysts of $75.57, which is considerably higher than where the stock closed yesterday ($71.87).

Gild has an 81.60% institutional ownership and is a member of the S&P 500 Index.

Market Cap: 90.3B

ATR: 1.14

Float: 1.25B

Short Interest: 2.05%

In the above three-year weekly chart of GILD, I can see that since bottoming out at the beginning of the year, shares of GILD have steadily maintained the bounce. 

Currently, support of the uptrend is nearing $70. Significant resistance on the three-year weekly chart can be seen around $78 – $80, where the stock failed to hold above last year.

Therefore, the above levels will act as crucial support and resistance areas on a higher time frame.

The above chart is the one-year daily. Since GILD was able to break out of the bullish pennant, shares have held firmly above prior resistance levels.

This is a sign of strength. Previous resistance of $70 has now turned into a key level of support in the short term.

The stock has spent over two weeks consolidating since breaking out, with $73 being resistance.

In the future, bulls might want to see the stock continue to hold above support and then advance over $73. If the stock can turn $73 resistance into support, then the levels from the three-year weekly chart will become the next levels of resistance.

Here’s something I often hear from newer traders: there’s seemingly so much action every day, I feel like I have to be in it, I’m urged to trade!

I know exactly where you’re coming from… I also know exactly how most of those temptations end!

You don’t want to feel left out, so you force a subpar trade, and in very short order – you regret getting in, beating on yourself for losing money. 

It’s not a fun place to be, so let me spend some time discussing why this happened and what you can do to get rid of this ruinous habit. 

The Need to Trade

Look, if anything of what I’ve just described rings a bell for you – don’t be ashamed and don’t beat too hard on yourself. 

The “need to trade” is a simple psychological fallacy that most traders fall into at some point in their careers.

After all, there are so many “outside” factors continuously putting pressure on you:

• If you’re treating trading as a full-time job (as I’d argue you should be), you feel the pressure to do something vs. seemingly just wasting time behind a screen.
• You are urged to generate cash flow
• Whenever you pull up your browser, it feels like every Twitter poster and his dog brags about a great trade they just had – seems so easy, right?
• It appears as though there’s so much action, yet you’re on the sidelines and feel left out.

This is very far from a full list of thoughts that have gone through my brain early in my career whenever I just sat at my platform and procrastinated.

Well, let me open up one of the greatest secrets I’ve grown to learn through a great deal of red trades and pain…

You Don’t Have To Trade

As a matter of fact, you shouldn’t trade!

Let’s get back to the absolute basics for a second – what is the job of a trader?

I can only speak for myself, but I’d describe it as something as follows:

• Find good trading setups where you have an edge against the market
• Identify good entry points and targets, to ensure limited downside and outweighing upside
• Protect your capital by being disciplined with position sizing and following your trade plan.

Now, where exactly among those lines does it say that you have to sit there and look for trouble every minute of every day?

The whole point of trading is to take advantage of a few specific market situations that you know and understand very well – therefore, you have an edge in them.

It’s only fair that those won’t happen very often – competition and efficiency of the markets won’t allow profitable opportunities to arise all the time.

From my experience and experience of so many others I’ve seen and trained – in this business, patience truly pays off. 

Be Ready, Not Greedy

Here’s a concept that may be a deal-breaker for many traders: 

You should be waiting for a trade – not looking for one!

Your job is not to search for what to trade, but to know what to trade!

The biggest skill you can develop in this game is the ability to recognize a good opportunity. 

Some of the best traders I know can sit for days on end without placing a trade, just observing the markets, but when all the stars have aligned – they attack the setup ferociously. 

Not trading also doesn’t mean you aren’t doing anything – trust me, uncovering what works, adapting to the market, and looking for a perfect setup is time a lot better spent than that of digging a financial hole while trading subpar ideas. 

The next time you want to place a trade just because it doesn’t feel right to sit on your hands – remember, it’s a lot better to be at zero than to be red. 

Bottom Line

Look, if you’ve ever regretted trading, or caught yourself placing trades out of urge and boredom – don’t despair. 

Learning to not trade when there’s no reason to trade is just another habit that every trader gradually learns into. 

The best you can do is try and speed up your learning curve while limiting your drawdowns.

Next time you’re at your screens and want to jump into action, ask yourself: “Is this truly a worthy trade? Do I know why I’m putting my money at risk and is the payoff worth it?”

If a detailed thesis doesn’t immediately come to your mind – chances are, you should skip the trade and wait for something truly good. 

With new technology comes new ways of using market indicators.

As the largest crypto currencies like Bitcoin and Ethereum have been rallying in recent weeks, some of these new indicators have not been confirming the rally, bringing its sustainability into question.

Today, I am going to introduce you to this new regime of indicators, and discuss what this divergence may be telling us about the next big move in crypto currencies and highly correlated crypto stocks.

Public blockchains are entirely open to the public

Before we get into the new regime of indicators that can now be used by traders to measure crypto trends and possible sentiment extremes/divergences, it’s important to have a very basic understanding of what actually occurs on the Blockchain.

The process of transferring Bitcoin funds from one user to another begins with the submission of a transaction request.

Nodes, which are computers connected to other computers on the blockchain network, verify the transaction details.

Bitcoin transactions consist of three separate elements – input (sender), header (transaction and funds information), and output (recipient info).

Once these elements are verified, the transaction is approved, the funds are transferred, and the transaction becomes part of Bitcoin’s public ledger.

Each transaction undergoes 6 confirmations before being fully verified, and the whole process can take from 10 minutes to 16 hours.

Public blockchains are entirely open to the public and accessible to anyone, which means that anyone with an internet connection is allowed to contribute to and interact with a given blockchain.

Thus, any person can download a public blockchain’s software and run their own node, allowing them to verify its information and/or add new blocks to the blockchain.

Due to being open for anybody’s contribution, popular public blockchains such as Bitcoin and Ethereum are composed of thousands of nodes actively contributing to the maintenance of their blockchains.

This forms a global and decentralized network of independent nodes where each node communicates with and verifies the work of other nodes instead of a single entity, or a small group of entities, controlling the system.

Although participants can remain anonymous during the creation of a blockchain transaction, information regarding numerous metrics generated during these transactions, such as transaction sizes and the number of active addresses, are public information that can be turned into indicators that traders can use to make better decisions.

From data comes indicators

As Figure 1 shows, Bitcoin ran into some resistance near $51K as it neared the 61.8% retracement level of the April through June sell-off this past Monday.

Figure 1

Typically, when the price of a security we are either trading or are interested in trading nears a big level we want to use secondary indicators (indicators other than price) such as sentiment or momentum to get a sense of how difficult it may be to move through that level.

The indicator I want to introduce you to today is one that you’ll never find in any technical analysis books and probably won’t come across when reading articles about trading in the crypto space.

The indicator to which I am referring is the number of active addresses.

Specifically, this indicator represents the number of unique addresses that were active in the network either as a sender or receiver, and only addresses that were active in successful transactions are counted.

For our purposes today, think of this data series as a demand side indicator, which are indicators such as certain volume studies that a trader would typically use to gauge the amount of demand underpinning a price trend.

In Figure 2 below, I’ve plotted the 7-day average of this indicator (solid blue line) against the chart of Bitcoin (dashed blue line).

Figure 2

Source: bitinfocharts.com

On the chart above, you’ll notice that demand for the Bitcoin network, measured here by the number of active addresses (solid blue line), has either risen or fallen pretty much in lock-step with the price of the cryptocurrency in recent months.

More recently, however, you’ll notice that the number of active addresses (solid blue line) has been slow to grow at the same pace of the rise in the price of Bitcoin (dashed blue line).

Traditionally, such demand-side indicators of network effects are powerful predictors of future price movements.

Therefore, as the price of Bitcoin stares down the traditional technical resistance (61.8% retracement) shown on Figure 1 above, this obvious lack of demand should be seen by anyone playing Bitcoin or crypto stocks from the long side as a reason to be on the lookout for any signs that Bitcoin’s rally from the July lows is breaking down.

At the same time, the recent strength in Bitcoin prices can possibly be seen as strong HODLing, which, if prices remain stable and demand in the form of active addresses starts to pick up again, could unleash a FOMO rally as reluctant longs are forced to chase the rally.

In other words, the price of Bitcoin sits at a critical juncture between critical resistance at $51,000 and support at $43,935, and the next big move is likely to come on either side of this range.