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GAPS


iShares Financial Services ETF Holding Big Gap

06/16/05 07:46:13 AM
by Arthur Hill

Even though a consolidation formed over the last few weeks, high volume shows that a battle is raging and the next break is crucial for the iShares Financial Services ETF (IYG).

Security:   IYG
Position:   Hold

The mid-May gap is bullish and has yet to be proven otherwise, but resistance at 108.5 is mighty stiff. Actually, there is a resistance zone that extends from 107 to 108.5. This area marked support from late November to late February and then turned into resistance over the last few weeks. The trendline extending down from January confirms this resistance area. In addition, the April-June 2005 advance marks a 62% retracement of the prior decline (Figure 1).

Figure 1: iShares Financial Services ETF. The April-June advance marks a 62% retracement of the prior decline.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
The index consolidated after the mid-May gap, but volume has been unusually heavy. Volume usually contracts during a trading range or consolidation, and this massive surge in volume reflects a big battle between bulls and bears. Despite new fuel (volume) coming into the stock, neither bulls nor bears have been strong enough to forge a breakout, and the trading range rules the roost.

The current trading range holds the key. When in doubt, it is best to wait for a breakout. The stock failed at 108.5 on June 1, and this level marks resistance. A break above this level would signal a continuation higher and open the door to a test of the January high. Conversely, a move below 106 would break consolidation support and fill the gap. This would negate the gap and call for a test of the April lows, possibly even lower.



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.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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