The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), the largest biotech exchange traded fund by assets, is trading modestly lower today, but if IBB is not able to close to the upside, today will be the fourth consecutive day the fund has closed in the red.
Over the past four trading days, IBB has lost nearly 6.5%, hardly cause for alarm when it comes to an ETF with a three-year standard deviation of 18%. That is nearly double the comparable standard deviation on the S&P 500.
Although IBB’s recent skid does not even meet the standard definition of a correction, which is a 10% decline, the ETF’s late April woes do have it flirting with some critical technical support.
“IBB hit resistance line (1) on 3/20 and created a “reversal pattern at (2). Since then IBB has traded sideways and may have created a “Double Top” at the (2) reversal level. Now IBB is testing Fibonacci 423% extension level as support this morning at (3),” according to Chris Kimble of Kimble Charting Solutions.
Chart Courtesy: Kimble Charting Solutions
IBB’s recent weakness has dragged the ETF below its 20- and 50-day moving averages, though the ETF currently resides more than 13% above its 200-day line.
What makes IBB’s current test of the support highlighted by Kimble so important is that, for several years now, nearly every dip and test of an important support area by IBB and rival biotech ETFs has been bought by investors, helping make biotech ETFs juggernauts. [Behind the Stellar Run for Healthcare ETFs
Dating back to 2012, at least two biotech ETFs per year have ranked among the 10 best sector ETFs, but those ETFs have struggled lately despite some bullish earnings reports. For example, shares of Amgen (NasdaqGS: AMGN) are down almost 6% over the past week, a time frame that includes the company saying first-quarter EPS surged 50%. Amgen also boosted its 2015 guidance.
Shares of Biogen (NasdaqGS: BIIB) have plunged 8% over the past week with losses accelerating after the company said first-quarter profits jumped 71%. IBB has a combined weight of 15.8% to Amgen and Biogen. [A Tough Spot for Biotech ETFs]