The broad market showed mild weakness yesterday, but volume declined and the major indices held support levels from last Thursday’s rally. The S&P 500 Index, Dow Jones Industrial Average, and the Nasdaq Composite Index declined 0.4%, 0.3%, and 0.6% respectively. However, total market volume in the NYSE declined by 7%, while volume in the Nasdaq was 11% lighter than the previous day. The major indices trended lower throughout most of yesterday, but each one found support near their 38.2% Fibonacci retracement levels from last Thursday’s range. Given the strength of last week’s broad market rally, it was not surprising to see a small correction. Since the broad market corrected on lighter volume, yesterday’s price to volume relationship could be construed as bullish because it indicates institutions were not heavily selling into strength. We have been seeing a gradual shift to more bullish price to volume relationships in the broad market during the past week, which is a refreshing change from the numerous “distribution days” that were plaguing the markets for several months. Nevertheless, we remain vigilant and cautious of any signs of institutional distribution in the coming days.
Despite the mild weakness in the broad market yesterday, there was a major pocket of strength in the Biotechnology Sector ($BTK). This was due to news from OSI Pharmaceuticals (OSIP), who released positive news for a lung cancer drug. In addition to more than a 100% gain in OSIP, many other biotechnology stocks such as Genentech (DNA) also rallied on speculation of similar positive results for their cancer drugs. Several subscribers in the MTG Intraday Real-Time Room netted more than a 10 point intraday gain in OSIP yesterday, due to our real-time trade call. Imclone (IMCL) also released earnings before the open today and blew away estimates. As of the time of this writing, they are gapping up approximately 20% from yesterday’s closing price. The sudden buzz in this sector is likely to create sustained strength in the Biotech sector, so you may want to consider taking a long position in either BBH (Biotechnology HOLDR) or IBB (iShares Biotechnology Index), especially on a pullback.
As we have been discussing for the past several days, each of the major indices remain at or near key resistance of their primary downtrend lines from their 52-week highs. Interestingly, these trendlines perfectly acted as resistance on the Nasdaq Composite, the Dow Jones Industrial Average, and the S&P 500 Index yesterday. The daily charts below illustrate how well these trendlines really work:
Because yesterday’s highs in each of the indices converged with their respective primary downtrend lines, a break above yesterday’s highs would also represent a break above the primary downtrend lines. If the major indices are able to close today ABOVE yesterday’s highs, this would represent a break of the multi-month downtrends that have been in place. The end result of this would probably be a gradual rally back up to at least the prior highs of the year. While we were biased to the short side for the past several months, all bets are off on the short side IF the major indices close above their downtrend lines AND on decent volume. But, until that occurs, we recommend caution with entering new positions because it is likely to remain a choppy tug-of-war between the bulls and bears at this key pivot point in the broad market.
Today’s watch list:
There are no new plays for today, as we want to wait for confirmed break of daily downtrend lines illustrated above before entering new long positions. Shorts are equally risky at current levels.
Daily Reality Report:
Below is Morpheus Trading Group’s daily
performance report of closed trades and an update on all open positions from The
Wagner Daily (Intraday Real-Time Room trades are reported separately in The
Wagner Weekly). Net P/L figures are based on the quantity of shares represented
in the MTG Position Sizing Model.
TTH gapped up to its trigger price, but then sold off intraday. As such, we did not enter the position, due to the MTG Opening Gap Rules. We remain flat.
Edited by Deron Wagner,
MTG Founder and