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Biotech i-Shares At 52-Week High

01/11/11 11:13:19 AM
by Chaitali Mohile

Will Biotech i-Shares sustain at its new high?

Security:   IBB
Position:   Hold

On the daily time frame in Figure 1, Biotech i-Shares (IBB) violated the 200-day and 50-day moving average (MA) resistance in September 2010 and marked the first bullish indication on the price chart. With this bullish breakout a fresh uptrend popped up, confirming the stability of the new rally. We can see the average directional index (ADX) (14) in Figure 1 surge above the 20 levels with a huge buying pressure, indicating the developing uptrend for IBB. The relative strength index (RSI)(14) climbed in the bullish area above 50 levels, suggesting a bullish strength in the rally. On these bullish notes, the rally moved higher and higher to $90, gaining a profit of approximately $5. However, IBB marginally retraced from 90 levels to test the 50-day MA without drastically damaging the bullish sentiments of the price rally.

Graphic provided by:
The index established robust support at the 50-day MA and immediately resumed the prior bullish move. Thereafter, IBB witnessed an exclusive advance rally, hitting the 52-week highs at 95 levels. Meanwhile, the ADX (14) reached an overheated level at 40, indicating a possibility of a trend reversal or consolidation. Accordingly, the advance rally consolidated in the narrow range of 95 and 94, thus forming a bullish flag & pennant formation at the new high. The ADX (14) in Figure 1 has dropped below the overheated levels, and thus, the uptrend is primed for a fresh bullish breakout of the flag & pennant. The gap between the trigger line and the moving average convergence/divergence (MACD) (12,26,9) has diminished, indicating volatility during the consolidation. However, the momentum indicator is well set in positive territory.

Therefore, the bullish consolidation will continue for a while.

Graphic provided by:
IBB has breached the previous high resistance marked by a shooting star -- the bearish reversal candlestick formation in March 2010 in Figure 2. The prior downtrend shown by the ADX (14) has reversed but the fresh uptrend is yet to be developed. Currently, ADX (14) is at 19 with an encouraging buying pressure. Though the RSI (14) is showing negative divergence, the indicator is overbought. In addition, the MACD (12,26,9) has moved into positive region. The shrinking volume is the only point of concern for the breakout rally to surge higher.

The overall picture suggests that IBB is likely to sustain at new highs. For the potential bullish rally, the uptrend has yet to develop and the volume should increase as well.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address:

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