BIOTECH ISHARES NEAR TEST OF 2004 HIGH -- IBB/S&P RELATIVE STRENGTH RATIO TESTS FIVE-YEAR DOWN TRENDLINE

BIOTECH HOLDERS MOVE UP ... Over the last week, I've shown bullish breakouts in two telecom ETFs (TTH and IYZ) and the strong upturn in Retail Holders (RTH). The biotech group has moved into third place over the last week in the relative strength rankings. The weekly bars in Chart 1 show the Biotech iShares (IBB) moving close to the previous high formed in the spring of 2004. Chart 2 shows that the IBB/S&P ratio bottomed last spring and broke a two-year down trendline over the summer. It's been a market leader since then. Three of the biggest contributors to this week's gains are Biogen (+7%), MedImunne (+6.5%) and Gilead (+5.7%). Besides nearing an important test of its early 2004 high, the IBB is nearing another important chart test. Chart 3 is a longer-term view of the IBB/S&P 500 relative strength ratio. Notice the two trendlines. The steeper (purple) line, which is the same one shown in Chart 2, has already been broken. A five-year down trendline (red line) drawn over the 2000 and 2003 peaks is now being challenged. Needless to say, an upside penetration of that line would be a very strong sign for the biotech group in particular and the healthcare group in general.

Chart 1

Chart 2

Chart 3