Market Overview

Following Extended Consolidation Period, Biotech ETF's Next Breakout Could Be Big

Following Extended Consolidation Period, Biotech ETF's Next Breakout Could Be Big

After some huge swings in the past three years, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB) has been relatively quiet for the past few months, trading mostly sideways within a very narrow range. The extended consolidation period may mean the IBB’s next breakout will be a big one. Traders simply have to figure out whether that move will be up or down.

IBB peaked at $399.60 back in the summer of 2015. By February 2016, IBB was all the way back down making 52-week lows below $240. The ETF's multi-year low of $239.34 from February 2016 has held as a support level ever since. IBB found support in the $240–$248 range five times throughout 2016 as it bounced between $240 and $300 throughout the year.

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After a brief dip to $270 early in the year, IBB has spent the past five months trading in a much narrower range near the top of its previous range. Since mid-February, IBB has found support several times in the $285 range, but it has repeatedly failed to break out above $300.

The two major support (green) and resistance (red) lines are included in the chart below.

Volume has been relatively low throughout this five-month stretch, and the trading range has been very narrow, suggesting the stock is consolidating ahead of its next major move. Traders will be looking for a breakout on high volume either above $300 or below $285.

If IBB breaks above $300, it could be headed as high as $343, where it ran into resistance a few times in late 2015. If it breaks down below $285, it could be headed back to the low end of its longer-term range, meaning a dip to the $240—$248 level could be in the cards.

Joel Elconin contributed to this article.


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