Written by William Kurtz
Biogen Idec (BIIB) shares have enjoyed a remarkable rise in price from $109.22 in December 2011 to about $293.00 today. Now, evidence is growing which warns that prices have become vulnerable to a sizeable correction, or even to a reversal of trend.
The Daily chart of BIIB shows a $21.76 price gap between the High of November 21 and the next day's Low. Coming, as it does, after a long and nearly uninterrupted price advance, I'm inclined to label the gap as an "Exhaustion Gap," which is a warning of a probable price reversal. We know that gaps act as "price magnets," and that they tend to be filled later. In the present case, prices are not far above the gap, so we can reasonably expect that the lure of the nearby gap is quite real.
The second (above) and third (below) charts reveal that the current high price of the shares is confirmed by extremes in the Indicator readings. Those extremes will not be sustainable for long. We see that the ADX and the RSI are high and that the Stochastics are very close to the top of their ranges, and are at the verge of turning down.
Most tellingly, in our view, is the "Crimp" or "Kiss" condition as between indicators Chandelle 1 and Chandelle 1. These two are read as a pair. It would seem that a "love-hate" relationship exists between them. When they are far apart, they yearn for each other, and the distance between them tends to close up. Conversely, when they are near each other, as in a "Crimp" (or even closer together, as in a "Kiss"), they repel each other; and when then do repel each other, prices fall. In the present case, the "Kiss" is very evident. It would appear that the "repulsion effect" is about to take hold, and may even have already begun.
Based on the evidence, it seems probable that the price of Biogen Idec shares is about to begin a decline.