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Following Extended Consolidation Period, Biotech ETF's Next Breakout Could Be Big

June 16, 2017: 09:57 AM ET

After some huge swings in the past three years, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB) has been relatively quiet for the past few months, trading mostly sideways within a very narrow range. The extended consolidation period may mean the IBB’s next breakout will be a big one. Traders simply have to figure out whether that move will be up or down.

IBB peaked at $399.60 back in the summer of 2015. By February 2016, IBB was all the way back down making 52-week lows below $240. The ETF's multi-year low of $239.34 from February 2016 has held as a support level ever since. IBB found support in the $240–$248 range five times throughout 2016 as it bounced between $240 and $300 throughout the year.

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After a brief dip to $270 early in the year, IBB has spent the past five months trading in a much narrower range near the top of its previous range. Since mid-February, IBB has found support several times in the $285 range, but it has repeatedly failed to break out above $300.

The two major support (green) and resistance (red) lines are included in the chart below.

Volume has been relatively low throughout this five-month stretch, and the trading range has been very narrow, suggesting the stock is consolidating ahead of its next major move. Traders will be looking for a breakout on high volume either above $300 or below $285.

If IBB breaks above $300, it could be headed as high as $343, where it ran into resistance a few times in late 2015. If it breaks down below $285, it could be headed back to the low end of its longer-term range, meaning a dip to the $240—$248 level could be in the cards.

Joel Elconin contributed to this article.

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