Biovail Makes A Breakout

03/21/07 10:48:41 AM

by Arthur Hill

A resistance breakout on good volume points to higher prices for Biovail.

Security: BVF
Position: Buy

In Figure 1, Biovail (BVF) formed a falling price channel and broke above resistance with good volume. There was a sharp advance in November–December, and the falling price channel represents a correction. The breakout signals a continuation of the November–December advance and reinforces support around 20. A move below the January–March lows would signal a failure and turn this chart bearish.

FIGURE 1: BIOVAIL, DAILY. BVF formed a falling price channel and broke above resistance with good volume.

Graphic provided by: Telechart 2007.

Volume and the on-balance volume (OBV) validate the breakout. Upside volume started increasing in late February, and there were a number of advancing days on above-average volume in March. In addition, the OBV bottomed in late February and surged higher over the last few weeks. Strong volume points to fuel for a sustained rally.

Figure 2 shows a longer-term perspective and more bullish signals. BVF broke the 200-day moving average in December and pretty much held this breakout over the last few months. The 50-day moving average moved above the 200-day in late January, and this golden cross is also bullish. In addition to the bullish moving average scenarios, there was also a large island reversal from August to December. The August gap and December gap created a price island where shorts were stuck with losses.

FIGURE 2: BIOVAIL, DAILY. Here's a longer-term perspective and more bullish signals.

Graphic provided by: Telechart 2007.

The upside target is the next resistance level around the 27–28 level. The stock met resistance between 23.5 and 28.5 from March to April 2006. Those who bought in this area (and held) have been waiting a long time for prices to return here, and some may want to exit at breakeven. As such, I would expect some resistance in this area and prices could stall above 25.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Biovail Makes A Breakout

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