As a potential short selling setup, iShares Nasdaq Biotech ETF ($IBB) remains weak and hasn't budged much since the sharp bounce off the lows in late April. The daily chart below shows resistance of its downtrend line, while the 50-day MA is also declining towards the price (which will provide additional resistance when it converges):



Scaling out to the longer-term weekly chart time frame, we see that a "bear flag" type pattern has developed.

The price of $IBB is hovering just above the 40-week moving average (nearly the same as 200-day MA), with the 10-week moving average (50-day MA) as resistance:



Note that the bounce off the lows only managed a 38.2% Fibonacci retracement of the last wave down. This suggests that the downtrend is strong and should resume once the current consolidation is over.

Look for the price action in $IBB to turn ugly, with a close below the two-week low and 40-week MA. If $IBB meets our technical criteria for trade entry, we will alert subscribers of our swing trading newsletter with trade details.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.