The iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) lost as much as 15% since last Friday and is now at a rare short-term oversold level.

Over the last year, there were only four times the RSI 2 dropped below four. The vertical green lines highlight the prior instances. It led to a rebound every time.

The chart also shows strong support (various trend lines and 50-day SMA) just below current trade (330 – 333).

If history repeats itself, IBB should bounce here. But will this time be different?

Sunday’s Profit Radar Report spotted an ominous red candle high and warned that: “The iShares Nasdaq Biotechnology ETF (IBB) saw a high volume reversal (red candle) on Friday. Nothing epitomizes catching a falling knife like picking a biotech high, but this is a development worth watching for aggressive traders. The corresponding short biotech ETF is the ProShares UltraShort Biotech ETF (NYSEArca: BIS).”

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This red candle high is still in play and volume really picked up during yesterday’s selloff (which could also be interpreted as washout decline).

Biotech shorts already pocketed nice gains, but as long as support holds, odds favor at least a bounce. Only a drop below will unlock further down side.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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