iShares Nasdaq Biotechnology Index (ETF) (IBB) Is at a Crossroads – Investorplace.com

By Serge Berger, Head Trader & Strategist, The Steady Trader|Mar 7, 2017, 8:02 am EST Popular Posts: Recent Posts:

Biotechnology stocks as represented by theiShares Nasdaq Biotechnology Index (ETF)(NASDAQ:IBB) have rallied 13% year-to-date. Thats notable considering that over the past 12 months, the IBB ETF has only rallied by about 14%.

Many traders in recent days have pointed to the continued strength in biotech stocks as a sign that the broader market is not yet ready to roll over. But it is notable that the IBB, as a result of the recent rally, has now reached an important technical level on the charts that may offer better technical resistance.

A simple yet effective trick that I repeatedly use to gauge the internal strength of the broader stock market is by checking the pulse of the so calledrisk-on groups. While these groups change over the years, they often include technology and financial stocks. In recent years, biotech, tech as a whole and small-cap stocks, among others, have led the risk-on pack.

Over the past few weeks, biotech stocks and the IBB ETF have showed both absolute and relative strength versus the broader stock market. Through this lens, one could argue that it is premature to get too defensive on the stock market in the near-term and possibly the intermediate-term until biotech stocks begin to back off some.

When I last discussed the state of biotech stocks on Feb. 1,I offered that the IBBs bullish reversal from Jan. 31 could be the beginning of a next swing higher with price targets in the$285-$290 area. Two weeks later, the upper end of this price target had been reached, and last week the IBB ETF further extended this rally into the $300 level.

Now, lets look at the charts.

On the multiyear weekly chart, we see that this recent rally has brought the IBB back to the very upper end of a sideways channel, which now also lines up with the 100-week simple moving average (blue).

Click to Enlarge

This confluence of technical resistance around the $300 area could provide a more meaningful challenge to be overcome.

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