IBB is the US biotech ETF that most people follow. The ETF was in a downtrend from early 2015 to early 2016. It consolidated for a while then broke out in late 2016. Since then, its been trending up. The trend channel has not been perfect – it has a slight sloping upper channel line. But the imperfect proportions of the channel are not enough to suggest a wedge is forming.
At this moment, the trend channel bottom is being tested. RSI and stochastics look to be in the early stages of hooking up. MACD- the longer momentum indicator- is still bearish.
Equityclock’s seasonal chart shown below suggests that the Biotech Industry seasonal tendency is for decent strength in November (which IBB has NOT displayed) then a big pop in December, followed by reasonable strength in January before the party ends some time in mid – late February.
If this ETF moves off of the lower channel line, and gets into the upper part of the channel by February per the seasonal chart, it could be a $35-$40 move. I’m projecting a purchase at $315 (this offers evidence of a successful trendline test and bounce) and a sell at the projected top of the trendline near $350. That’s about 11% upside. Not bad for a 2-3 month trade. Contingent upon the bottom trendline holding, of course.
Keith on BNN this Friday
Keith is on BNN MarketCall Tonight this Friday Dec 1st for the 5:30 PM show.
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This mention of IBB reminded me that I had forgotten to look at ZUH.CA in a while. The holdings are not the same, but it’s in a similar “sphere”. BMO calls it the equal , weight healthcare ETF. It’s in CAD dollars.
The weekly chart and the daily charts look perfect. On the weekly chart, in July, there was a re-test (well, at dip pretty close to) of the July 2015 high. Then recently there was a fairly tight range and now a break above.
Is it too late to enter? It’s so difficult to buy an ATH, but it seems to work way better than buying support, at least from my experience. And what if it has a “measured move” that equals to the first one from 2013 to July 2015 (20 to 45). That would be a target of 70, a 40% move.
On the other hand we didn’t have a 3% market pullback in a long time. Is it reasonable to buy an ATH… now?
What to do what to do. Maybe go half and half? Put half on IBB on a successful test, and ZUH.CA tomorrow? Maybe pray the 3% pullback comes next week and we get a second re-test of that July 2015 high?
Thanks for this blog post Keith!
Matt–lots of questions–perhaps forward one or two fo them to BNN per the address given on my blog and i can address them Friday while on the show.
But in a nutshell–ZUH is breaking out, give it a few days to confirm that breakout before buying
IBB is holding, but like I said on the blog–my thoughts are to wait to buy it on the bounce $315, then sell at the top of the channel. You may differ in strategy, but that’s the way i am looking at it.
i prefer XBI to IBB. It is equal weight rather than large cap weighted, which to me means lower risk. For the most part XBI has outperformed IBB since the bottom in 2016 but not recently. Also, the lower price means I can actually buy a 100 lot shares without having too large a position in one security. Perhaps this is a question better addressed on your tv appearance later this week.
Thanks Paula–great input!