A Bull Flag Is Forming on This Biotech ETF

Biotech stocks are not for the faint of heart. Price swings are tied to unpredictables like patents, pricing and when a new drug can get to market. Treatments are also expensive, and both lawmakers and the president have said they want prices to drop, which just adds fuel to stocks’ volatility.

But for investors who can handle a little excitement, the iShares Nasdaq Biotechnology ETF (IBB) is forming a bull flag that points to the upside.

Bull flags are formations that come after a recent uptrend. After the initial spike, stocks have a tendency to pull in to a support level and take a break from the higher move. The uptrend is the flagpole and the pull in is the actual flag, which slants downward.

IBB’s uptrend ran from June 19 to June 22, and now the ETF is in the consolidation phase of the bull flag. It would be nice to see shares break out of this formation to the upside targets below.

If you take a look at IBB’s weekly chart dating back to the beginning of 2016, the ETF has been range bound. Throughout this period, shares have bounced around in a tight zone anywhere from $300 down to $250. Yes, there is always a trade to be had between those levels, but all in all, IBB has been moving in a tight range. But recently, shares have broken out of that range and run all the way up to $323.45 before pulling back into support at around $308.

IBB is setting up a nice bull flag (highlighted in purple in the chart above) after its recent pop up to $323. If this pattern continues to hold roughly anywhere from $308 to $310, I think IBB has the potential to rally back to $323.45 and head up to $331.

Again, this ETF is not for the timid; it is an aggressive trade.  Please keep stops where you feel comfortable. 

For more institutional advice for the individual investor, please visit Allied Millennial Partners.

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