Biotechnology stocks have fared well year-to-date, and they even managed to recover well after a short-lived intra-week scare, closing the week near their highs. Among the pack, shares of Illumina, Inc. (NASDAQ:ILMN) stand out. ILMN stock looks increasingly ripe for a break higher after having spent the majority of the past two months in a sideways range.
Before digging a little deeper into the charts of ILMN, allow me to say a word of caution as it relates to biotechnology as a group. Biotech stocks are nothing for the faint of heart, and it is not uncommon for even the largest names in this space to see large multiday drops following either an earnings report or news regarding one of their drugs.
As such, traders must put strict risk management parameters in place; that is, stop-losses should be used in conjunction with reduced position size.
To be clear, this is distinctly different from longer-term investors who want to place a bullish (or bearish) bet in the biotech space using something like the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB).
When I last discussed the state of biotechnology stocks as a group — as represented by the IBB — on March 7, I offered that while the IBB is bumping right into the very upper end of a longer-standing sideways range, the daily chart increasingly offers hope for at least a temporary resolution higher and out of this range.
Looking at the relative picture of the IBB as measured versus the S&P 500, we see that after lagging the broader stock market badly since the summer of 2015, the recent bounce in biotech stocks is thus far scoring a marginal breakout past diagonal resistance from the 2015 highs.
While this is not a major win just yet, it is worth respecting and keeping a closer eye on.
Shares of ILMN stock have rallied sharply since December 2016, and two weeks ago, they bumped into diagonal technical resistance from their 2015 highs.
What strikes me as constructive for Illumina on this chart is that the stock has largely been in a sideways consolidation mode since the first part of January. It might be coiling up for a better directional move in the not-too-distant future.
On the closer-up chart, we see that ILMN stock last Thursday formed a higher low versus its second-half February lows, which on Friday was followed with a nice up-day.
Barring any quick bearish reversal, Illumina stock looks poised to soon push above the $170 area. That may clear room toward $180 and $190, which in turn would satisfy a filling of the down-gap from October 2016 (marked by the blue box on the chart).
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