i-Share, S&P Global Healthcare

04/08/05 09:41:37 AM

by Koos van der Merwe

The mutual fund industry has shot itself in the foot and is chasing investors to i-Shares.

Security: IXJ
Position: Hold

The mutual fund industry has had its share of recent scandals, with accusations of trading and offering special deals to preferential clients. The ugly clamor has forced the industry to pass regulations restricting the trading of mutual funds by investors. In Canada, for example, funds once switched may not be switched again for a period of 60 days. This rule has caused even more investors to look at i-Shares as an alternative to mutual fund investing.

Figure 1 shows i-Share, S&P Global Healthcare.

As you can see, the i-Share has moved up with a great deal of volatility from July 23, 2002, as more and more investors become familiar with i-Shares. The S&P Healthcare Index is effectively being bought, which appeared to top in a rising wedge with the support and resistance trendlines on February 9, 2004. The divergence sell signal of the relative strength index (RSI) was a good tip that the i-Share was due to fall.

Figure 1: i-Share, S&P Global Health. The divergence sell signal of the relative strength index was a good tip that the i-Share was due to fall.

Graphic provided by: AdvancedGET.

On October 22, 2004, the i-Share fell to test the support line at $44.37, forming a double bottom. The share price then rose to test the resistance level at $49.60, a level that appears to be extremely strong. The quadruple top that has formed in conjunction with a falling RSI is suggesting that the i-Share may fall to retest the support line, with $46.85 being a pivot point, possibly the trendline support level.

Do note, however, that should the i-Share start rising, and should it break above $49.60, it will rise to well over the $55 level because of the break above the strong resistance level. Something worth watching.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.