Biotechs bucking the bearish ideas to look like bullish potential

I've been bullish on biotech for a while though I don't track it often. But it's hard to ignore right now that they're once again showing more bullish than the broad market. I don't keep an Elliott Wave count on biotech and can't guarantee it won't have pullbacks along the way. But in general I view pullbacks in this sector as buying opportunities. And a breakout here should be another buy point. Still and always a good idea to use some stop protection and position management of course. My approach for this sector is long-term position, adding more at buy points and only trimming if it looks clearly overbought. Long-term it's a smart sector to remain in and even increase.

Technically, the StochRSI remains in the upper positive/momentum readings, and the slower-moving DMI-ADX is positive too (and is poised to move higher which would place it into trending territory). And the daily chart is perking up now. A breakout that holds recent swing low support should place first the StochRSI and then the DMI-ADX indicators into positive trending territory too. Those are just a couple of ways that indicators can help corroborate that upward movement has strength. Showing that in both daily and and monthly supports the view that the uptrend should remain intact for a long time to come.

Using ETFs makes a lot of sense here unless you really do homework to pick individual companies. BBH is one well-known biotech ETF, and there are others.

Postcards from the ledge, post-Bradley as stocks falter

Here are a few "postcards from the ledge" of what may be a "B" wave top in equities that completed on Wednesday, with yesterday having been the Bradley model "turn date" that had stock markets gyrating. While the S&P 500 didn't break under yesterday's 1074.31 intraday low, some other sectors and indices did. I'm not even posting the biotech sector ($BTK), last month's darling which today actually moved under its early October lows. Today, last week's darling the semiconductors (SMH), and the NYSE ($NYA) and Transports ($TRAN), poked under yesterday's low. So - is it confirmed bearish? Well, these seem more along the way at least! There was an interesting potential wedge down at end of day that could be interpreted to provide a boost upward. Conversely, if we're really moving along the C wave down, there's potential for a gap down 3rd wave) on Monday. The market likes to keep some secrets going into the close. So we'll allow for some ambiguity.

But I made the point recently here that to know when the B wave is done, we'll start seeing sectors and indices turning down. That means these charts below may be the precursor of what's to come.

Biotech taking a breather but it's well-deserved; may be next good opportunity after consolidation

Biotech as represented by the $BTK chart might look like it's losing momentum on the daily chart - and it is, if you look at that (at right) ... but the bigger picture on the weekly chart (below) shows it's just been tagging the high levels of 2008! The weekly chart also shows good momentum on the Stoch RSI. So whether you call it a cup and handle, or a wave 3 in EW terms for the next movement up, there's a good chance that it's only going into a consolidation or perhaps corrective phase that will set the stage for its next move up.

Obviously there's chart support at $700 in the BTK chart, if it goes that low; although I'd be surprised to see it pull back deeper than $775 (based on chart pattern and rising 20-day moving average (DMA) which should be there soon). There's also that 50 DMA, of course, already about $700 and rising. Given biotech's momentum, it's also reasonable to look for the 13-day exponential moving average (currently at 820) to provide near-term support.

Biotech sector's good move today can be a good breakout pointing to higher levels

Very nice move in the biotechs today! I'm keeping in mind several Elliott Wave possibilities for the count, as I don't want to become complacent about its continuation to new highs ... even though from a fundamental and conceptual standpoint, I really like this sector's prospects for the future. However, since the move today vaulted well above certain Fibonacci retrace levels (that I discussed more at my UBTNB3 blogspot, see links at right), I think that $BTK has good chances to continue higher.

I can still think of ways to count something that would be bearish - even if this leads to a new high, if it would be a fifth wave and then roll over again. More immediate would be if this is a "B" wave after a flat, which then gives way to the rest of a complex correction, such as a zigzag or pair of zigzags down. And other Fib levels can be checked such as .786 retrace, etc.

Looking at it from a bullish perspective, this can be a wave "3 of 3" up, and the indicators are looking plenty positive. Even the DMI-ADX has spiked up - since it's a slower moving indicator, this is already impressive. We can also keep an eye on the stochastics and MACD indicators, which move more quickly and will give a sooner heads' up with any negative divergence when the time is right. Given that the move today already put it in good position to work on moving to new highs, I'm tilting to the idea that it may be a while before that time comes.

For a portfolio like the "KI$$" idea I surfaced this weekend, it can be a good idea to buy it as a breakout, since the recent consolidation range should provide good support if it were to experience weakness. The indicators looking this positive are not giving any signs of that level of weakness showing up anytime soon.

UK banks on "life support"; barter rising in popularity; and other news about the economy and markets

UK Pound Declines as Service Industry Growth Slowed in June (Bloomberg, 7/3/09) - Bank of England policy maker David Miles said yesterday that the UK banking industry “remains on life support.”


Tony Caldaro issued a holiday update at Elliott Wave Lives On today. One thing he said, that "Sweden's central bank dropped its savings rate to minus 0.25%, and is now charging savers to hold their money." As far as I can determine, this is not accurate - they dropped the savings rate TO .25%. Still .... - this concept of a negative interest rate on savings is something predicted by Kondratieff and other long-wave cycles analysts, although it's probably a little early yet for this to become more of a phenomenon as the "winter" cycle progresses. If you're not already familiar with the concept, it has something to do with people being so eager to save that they are willing to forego receiving interest rates, and even become willing to pay fees to keep their cash safe.


Speaking of Tony and his update, he is now marking the Dow Jones Industrial Average as in a downtrend. It didn't break under the "wave 1" level swing low, but definitely moved under the .786 retracement level that even the S&P 500 moved under and now cannot seem to surmount - so it's looking heavy, and the indicators seem to bear out Tony's statement.

Illinois bank failures mount (Chicago Tribune, 7/3/09) - "As I see it, we're now in the cleanup phase for the banking industry," FDIC Chairman Sheila C. Bair said in a statement last week.

Bartering continues to be on the rise - Here's one of the articles about the bartering exchange services (usually on the internet) that help small businesses and individuals to "buy" or "sell" products or services without cash: money.cnn.com - Make purchases without cash (6/25/09).

But if you're still thinking in terms of a sector that can do well, and considering biotech - as I've been considering it (although I'll exit and step aside if it violates its own recent swing lows, and look for a better entry) - check this out: Is IBB the Best Biotech ETF? -- Seeking Alpha.

Folks, I'll return later during this holiday weekend with more!

Stay vigilant according to Dow Industrials' relative weakness and Elliott Wave counts

Although there may be reasons to look for higher levels tomorrow and/or Friday based on cycles and seeing the Nasdaq relative strength, the relative weakness of the Dow Industrials plus the probable Elliott Wave count signal traders to remain vigilant for the downside. If we are facing a third wave down as the next move, as we are thinking is the right count, then the odds of a gap down tomorrow morning are greater now. The P&F (Stockcharts.com's default settings) show Dow 8000 and SPX 850 as targets. Both look just slightly under the levels that would be symmetry targets if this would instead count out as an "abc" pullback. But those levels would also remain above the P&F chart support levels. If and when we get there, we'll be considering whether those are completing the pullback move, or merely a third wave, etc., with implications for a deeper test of the March lows.

Besides, there's the Bradley model that suggests an important low on Friday. The Bradley model may be working well this summer.

As the dollar strengthened this afternoon while the euro weakened, this can also be consistent with a near-term bearish outlook for equities.
Today the Fibonacci levels worked well - the calculations I'd provided were from the Friday afternoon swing high rather than intraday high, but as conservative levels worked out well for intraday longs with the map into the morning high in SPX. Others had also been mentioning the 912 level based on chart resistance, moving-average or other technical analysis methods. This also looks consistent with being small first and second waves within wave 3 down based on Tony Caldaro's SPC count, which looks good to me. It's because of this count that prospects for a gap down in the morning are increased. Gaps are most likely to occur during third waves (and C waves, which have much in common with third waves).

In sectors, retail and real estate still look heavy, and biotech still is maintaining above its 20-day moving average. Swimming against the tide is difficult but I like the biotechs' relative strength.

How the markets are turning and churning

The equities markets appear to be confirming that they're turning over, while testing - or churning with - moving averages. Retail (RTH) in particular looks to be testing its 50 day moving average (dma) from below(while most sectors are above 50 or 20 dma support), just as its own 20 dma is threatening a bearish cross under that 50 dma. VIX popped above the channel it's been in for weeks, but found resistance at its 50 day moving average (dma), just as the XLF (financials) reached for support at their 50 dma. Gold poked to its lower Bollinger Band with GLD also getting 50 dma support, then put in a good bounce. Biotech was a strong sector, followed by technology generally, while retail and consumer discretionary lagged. Real estate and the transports struggled to participate in today's bounce, but look underperforming the broad markets' tepid performance. In currencies, the dollar held back while the yen popped strongly. Treasuries did okay, though not moving up with conviction at this point.

In the S&P 500, the market can have put in some (likely) or all (less likely) of a small wave 2 pullback up. That would fit with the idea of another effort up tomorrow to give nimble players one more chance to buy puts or sell calls into opex this Friday.* Granted, looking for a good bounce this week hasn't been well rewarded, which is a clue that the market may be weaker than many assume. If we see the early part of a "small" wave 3 down late Thursday and/or Friday, then Monday could be very interesting!

*Actually, most options traders avoid options that are so close to expiry because of the disappearing premium value, though if you can sell to open then you benefit from that inherent erosion of course. I don't give options advice but just making observations!

Assuming that the equities markets drop into the generally expected, and somewhat feared pullback, it will be interesting to see how a sector like biotech can really pull away bullishly. I'm pulling for that to happen - I just wonder how well it can swim against the tide.

Inclined to see channels and wedges in equities indices? It isn't your imagination

Since I noticed a number of narrow price channels and similar formations appearing in various indices, including small wedges that might (stress: might) be diagonal triangles, plus a few small standard triangles that have led to corresponding moves up, I decided to pull and mark these on a number of charts. Here's the result, below. So if you also have been inclined to see these, it isn't your imagination. Some of these are "inclining" more than others, but in each case the big question is whether these are ending formations signaling the type of trend reversal that we and many others have been watching for. Without dissecting the internal subwaves on hourly charts, or even cross-referencing to other technical indicators, one easy way to see if trend reversal sets in will be whether and when these index prices break below the lower trendlines I've marked on these charts.

As an aside, I do like the relative strength appearing in the biotech index ($BTK, shown as a standard full-size daily chart below). So I am staying in, but have decided to move my stop to yesterday's low just to give me some more peace of mind about staying in at this point. And then there's TLT ... a lot of volume yesterday and today. Today can be interpreted as a bullish engulfing candlestick. So just maybe, finally, it's time for TLT? Once again, most investors and swing traders should allow it a bit of room to confirm a trend reversal pattern before just moving in. Those interesting in trying it a bit early can wait and see if it moves - and especially looks set to close - tomorrow above today's high. If so, tomorrow could be used as an entry day, with a stop at today's lows (and then moved to tomorrow's lows).

Something I don't like the looks of - RTH, which looks bearish to me; see its standard daily chart at bottom. Not in a channel or wedge, but just looks like it is breaking down. I may initiate a short in that sector, and the easy way to set the stop for that is at yesterday's high ($81.94 in RTH).

**UPDATE 6:38 pm - Check out Tony Caldaro's update this evening at his Elliott Wave Lives On site (link is in the "other sites of interest" at the right side of the page, plus his site feed is underneat that list. Andre's subscribers also have some interesting updates (as always) too.
And yes, SPX did reach the 953 number I was interested in. There does remain another at 963, so we'll see whether or not it wants that one too, or does it decide to break trendline support instead.

(click on any chart to see it larger)

Barclay's bearish, but Dollar - AND Biotech -bullish prospects: ups and downs on the Street today

Pete Najarian is Twittering today that OptionMonster is offering a free webinar at 3:30 Central Time (right, that's 4:30 Eastern) on the prospects for global rebalancing to trigger a huge bull market in the dollar. Probably worth checking into, at: https://optionmonster.omnovia.com/registration/pid=44031241638072. Meanwhile, a quick look at two things, one UP and one DOWN today on the Street: the Biotech index ($BTK) has broken upward from its recent consolidation range which is especially significant on a day when the broad markets are down. There are a number of ETF's that track biotech companies, including BBH, XBI, IBB, PBE (and I think also FBT and PBTQ but this information is a bit dated). Do your own diligence, but it's worth looking at these charts - the P&F is showing a target to $770 for the $BTK, but if it turns out to be a longer swing play then one might consider partial profits there and see where the rest can go over a much longer time. (Stops are probably a good idea just under the recent consolidation range lows.)

If you agree with the idea that biotechnology may be part of a bull market for years to come, this can be a good opportunity. If it experiences great weakness (perhaps as part of broader market weakness) at some point in the future, and falls under the lows of the recent consolidation, then there's no harm in stopping out and watching for a lower re-entry point. But at least, this way we'll be in now - in case biotech never does revisit the recent lows.

Lower down are charts of Barclay's (BCS) - big drop yesterday and with those gaps it could be an island top reversal. Island reversals are considered very powerful trade setup patterns. The obvious stop would be at Monday's high. The P&F chart doesn't show a new target yet but has registered a "High Pole Warning" alert. While I don't have a target at this point, one might consider a 50% or 61% retracement back to the lows. Checking out any fundamental news and research on Barclay's may also help inform one's views about where the stock goes.

(click any image to see it larger)