If the name Ibio Inc. (NYSEMKT:IBIO) rings a bell, it may be because I put some bullish thoughts into print regarding the stock back on June 21st. I reiterated my optimism on July 12th. What can I say? It's fun to be right. IBIO shares have advanced 17% since my first look in late June. Then again, most of that big jump has unfurled in the last couple of days, meaning Ibio Inc. is overbought. Do we trust the breakout move, or do we fear a pullback? Answer: That depends.
Just as a refresher, IBIO was already taking shots at a break above its upper (and rising) resistance line in June when I first mentioned it. Though still erratic, with a string of higher lows already established, we knew the undertow was a positive one. What happened in the meantime is what sealed the deal for me. Though things remained erratic, notice how all throughout July Ibio Inc. shares started to find support at various moving average lines. During that time, the 20-day average line (blue) crossed above the 100-day line (gray), and as of this week the 50-day moving average line (purple) crossed above the 100-day line. Those are simply, but clear, bullish clues.
The catalyst was news, which is always a little troubling since bullishness seems to fade as soon as the news becomes old-hat. In the case of IBIO though, the news triggered a technical event, which in turn triggered other technical events that got the attention of a whole slew of new traders. Translation: The news got the ball rolling, but the news isn't necessary to keep the ball rolling.
That being said, it's not as of this "perfect storm" of technical triggers can force Ibio Inc. to make a beeline for record highs. Breaking out of a rut is still a process, especially after a stock gets as overbought as IBIO was yesterday.
So what's the play here? Ideally, for the long haul the stock would pull all the way back to that confluence of support around $0.52 and then move back above the 200-day average line. If the stock can make the big leap twice and the bears can't keep it down, that's more than enough proof the buyers insist on taking control of the stock for a while. (Almost) needless to say, that second move above the 200-day moving average line will be a key buy signal.
The second possibility is that Ibio Inc. builds a base above the 200-day line at $0.52 by trading above it for quite some time... as in several days, if not weeks. This will be the more frustrating one, as it opens the door to possible fakeout-breakouts before that base is fully gelled. But, once it is set up, the pushoff from it - the one that rekindles the breakout - should be fairly obvious.
Bluntly, the last thing we want to see here is a lot of red-hot, bullish follow-through. That will only exacerbate Ibio's overbought condition, and invite a wave of profit-taking sooner than expected. Problem is, a big pullback now will deflate almost all of the newly-developed hope. Horrible timing. That doesn't look like it's going to be a problem, however.
Whatever the case, be sure to put IBIO on your watchlist. It just became a mover.
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