The iShares Nasdaq Biotechnology Index (ETF) (IBB) Is on Breakout Watch!

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The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) rallied about 25% from late June into early August as the broader market moved into a new risk-on phase. Over the past few weeks, the IBB has settled into a constructive-looking technical consolidation phase that, barring any major outside headlines, points to a higher path of least resistance.

Beat the Bell: iShares Nasdaq Biotechnology Index (ETF) (IBB)When I last discussed biotech stocks on July 14, I mused that this group of stocks was arriving at a crucial make-or-break area. Since then, the IBB ETF managed to push past important technical resistance and wiggled itself into a brighter spotlight. Now, IBB has the attention of a host of institutional investors.

Before looking at the updated charts of the IBB, a word about risk management as it pertains to trading hot sectors like biotech stocks.

When this kind of high-beta area rallies, the momentum can last far longer than what seems reasonable. This simply is a function of momentum players piling into the rally until the retail traders ultimately jump over one another to get in on the action. This is why once a high-beta or momentum group of stocks begins to retrace, the corrections can be more severe in depth and time than otherwise would seem reasonable.

IBB ETF Charts

On IBB’s multiyear weekly chart, note the 40% drop from the July 2015 highs through the February 2016 bottom.

Just as important to note is that for hot groups of stocks, when they do retrace, they tend to find support at technically important junctures. In the case of the IBB ETF, note that at its February lows (and again at the retest of those lows in late June), the red 200-week simple moving average held as support.

IBB ETF chart weekly
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Now let’s zoom in on the daily chart. In July, when the IBB ETF broke out of its seven-month trading range to the upside, it maintained its composure. Instead of flopping back lower, it simply settled into a constructive consolidation phase. This phase is taking place above the former horizontal line of resistance, as well as holding the yellow 21-day simple moving average.

On Monday, the IBB rallied close to 2% in an attempt to break out of this most recent multi-week consolidation phase.

While the breakout in my eyes is not yet complete, this was a respectful attempt.

IBB ETF chart daily
Click to Enlarge

A break of the IBB above $300 could be the signal needed to go long the ETF for a move into a next upside target between $310 and $315.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/ishares-nasdaq-biotechnology-index-etf-ibb-bull/.

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