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CHART ANALYSIS


Biogen Idec Inc. (BIIB) Rise Looking Dubious

06/30/04 04:24:22 PM
by Gary Grosschadl

This stock is looking toppy in a rising channel.

Security:   BIIB (Nasdaq)
Position:   Sell

Biogen Idec has been on an upward tear since gapping above $50 last February. This bullish drive has resulted in a bullish rising channel, but a closer look shows some concerns.

The last trading session resulted in a spinning top forming. This small bodied candle with upper and lower shadows is a sign of indecision that often means a loss of upward momentum. This candlestick needs to be confirmed with more downside as an upside move here can negate the bearish implication. The fact that it occurs very near the previous top adds significance. A stall here could bring a downleg to challenge the bottom of the channel.

Biogen's daily chart shows a rising channel with some concerns.
Graphic provided by: Stockcharts.com.
 
When considering several indicators, bigger downside possibilities emerge. Three negative divergences hint at something amiss with the positive nature of this rising channel.

The ADX or strength component of the uppermost graph has been weak, at less than 20 for most of this channel duration. This hints that this structure may have a weak foundation. The MACD (moving average convergence/divergence) indicator and the RSI (relative strength indicator) both show negative divergences to price action. Their downward slopes show waning strength while the stock price has been climbing.

The question looking ahead is whether or not the downleg (assuming it does occur) is merely a move to again bounce off the lower trendline or whether this channel structure breaks to the downside. If this does occur, a move to test the top of the gap near $50 could be a possibility.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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