Market Overview

3 Reasons To Embrace The IBB

Related IBB
The Daily Biotech Pulse: Vivus Extends Supply Deal With Sandoz, Applied Genetic Snaps Ties With Biogen
The Daily Biotech Pulse: Legal Victory For Boston Scientific, Alder Gets New CFO, FDA Go-Ahead For BioXcel
Why Biotech Asset Managers Can (Should?) Make Money In Any Markets (Seeking Alpha)

The biotech sector went through heavy selling starting in July 2015, preceding the overall market sell off in January and it corrected 50% of it's run off the 2011 lows.

This is not unusual for any investment. The downtrend on iShares NASDAQ Biotechnology Index (NASDAQ: IBB) remained intact until recently the following three Technical aspects captured our eye.

A Double Bottom pattern, referred to in appearance as a "W", took place at a 50% Fibonacci Retracement level. It was not confirmed until it took out the high of the middle of the "W" (270 range).

The Fibonacci retracement level corresponds to a Double Bottom bounce right at the 242 area.

The Double Bottom bounce, bullishly went up at the 200 Weekly period moving average on the weekly chart.

IBB ran up 6% on Wednesday. The first objective should be in the 300 area, where the double bottom price objective would be realized. This also corresponds with a downtrend line that lays right around 300. To measure the price objective take the low around 240 to roughly 270 where the middle of the double bottom is and you arrive at 30 points. Tack that onto the breakout point and you arrive at a price objective.

What we don't know, is if it will hit the downtrend line, turn around and retest the base; or if it continues forward and blast's through the downtrend line.

The third scenario is that it hit's the downtrend, turns around and fails the support at the bottom of the "W".  Only time and price will tell. We will be watching. If you decide to jump in, pay close attention to the price action around the 300 range to guide you on whether or not you need to take profit's or on whether or not it's consolidating to get ready to breakout of the downtrend line. 

Stock chart: 
Stock chart

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Technicals Trading Ideas


Related Articles (IBB)

View Comments and Join the Discussion!

Lessons In Picking Bottoms

After-Hours Recap: CarMax, Wynn, Relypsa, ConAgra, Ruby Tuesday & More