Biotechnology is a stock market leader in recent months but is bumping into heavy resistance now. That could have serious implications for broad stock markets.

After reaching all-time highs in 2015 the biotech sector corrected 40 percent. As it mostly goes it started a consolidation period in which bulls and bears gave up. That is how new bull markets are born: there is no interest whatsoever, financial media does not talk about that market, and only a small group of smart investors (the strong hands) are left with the shares. Every new buyer is able to push prices higher in such a market.

Full disclosure: we got confused as well because we saw biotech going from breakout to breakdown level, see Biotechnology Stocks Trying To Break Out, Biotechnology Rated Neutral To Bearish. Bad News For Stock Markets?, Biotechnology and Health Sector Testing Long Time Support.

That is exactly what happened in the biotech space: everyone lost faith in the sector after the mega correction, but this year biotech has gone up and broke out when the sector ETF IBB crossed 300 points.

Right now, however, biotech arrived at heavy resistance. The IBB ETF chart shows how the current price level was key resistance during the 2015 crash.

We read this as a warning sign for broad stock markets. If a stock segment leader bumps into resistance it means other (weaker) stock market segments need to drive broad markets higher. As we have entered the weakest season of the year for stock markets we believe this is a scenario that is not likely to happen.

However, if things turn out differently, we could see that our bearish S&P 500 Forecast For October 2017 gets invalidated.

(Click on image to enlarge)