On Wednesday at 11:30 EST, we alerted traders that the Biotech Index (BTK.X) looked to be breaking a long-term level of support and that traders should be alert. Not long after that alert was given, the Fed interest rate cut had stocks surging to the upside. That unforeseen event had the BTK.X and many other indexes reversing course and heading higher. Below are some reprints of the BTK.X commentary I write for IndexSkybox.com on an hourly basis. I'm re-printing it here as all of our affiliated sites get this update and hopefully will keep traders and investors some educational background and drive home the point of making an observation, then following that observation for more than 1-hour. Currently, it looks like the Fed rate cut may have been a bullish traders chance to get out of some biotech stocks on that brief rally and an opportunity for bearish traders to short or put that rally. While the BTK.X doesn't trade options, we've talked about Amgen (AMGN) and the Biotech HOLDR's (BBH) before and both of these securities trade options. Near the bottom of today's 11:30 update, we'll look at what's currently taking place.
01/03/2001 11:30 EST Update
Watch the Biotechs here!
A downside alert at a long-term support trend was recently triggered on the Biotech Index (BTK.X) and traders should be alert here. We've added a level of confirmation to our chart of the BTK.X and this activity may be troublesome to the NASDAQ Composite. Some of our indicators indicate that this group is "oversold", but we'd be very cautious in any bullish trades for this index with the technicals starting to break down.
Biotechnology Index Chart - last eleven months.
The BTK.X broke a long-term upward trend this morning and now looks to be setting up a "bearish triangle" formation. OK for traders to be buying some puts and shorting stocks in this index here with half positions. Look for a break of our "confirmation" level below 550 to round out to a full position. Shorter-term traders can short full positions here with 550 being a target. MACD is below the zero level and turning lower.
01/03/2001 12:30 EST Update
An now a second downside alert has been triggered on the Biotech Index (BTK.X) at 550, thus "confirming" the break of upward trend. Little doubt what traders should be doing here.
Biotechnology index Chart - last seven months.
Short-term traders that shorted the breaking of a long-term upward trend (A) should have locked in profits or at least moved down stops once their initial target (thick pink) was achieved just minutes ago. Swing traders will now be targeting our thick blue level of horizontal support near 535. This level was derived from a rally and breakout point back in May and June of 2000. Traders with a "longer-term" view can be targeting our horizontal black level of support near 470. This level was identified from some short-term levels of resistance on April 19th and May 25th of last year.
01/03/2001 04:30 EST Update
Biotechnology Index Chart - 15-minute interval
Remember my alert at 11:30 EST that the BTK.X was breaking down at 578.00? What about the 12:30 update and targets? Day-traders that moved their stops down (discipline) locked in some nice profits on a bearish trade at 555. I talk a lot about a disciplined approach to squeezing profits from a trade and the use of actively monitoring a trade. If you ever talk to someone that says, "I don't believe in stops" hand them this chart and educate them on the importance of trade management. I'd quickly point out that stops aren't just for those trading bearishly! If today's news had been an earnings warning from Cisco Systems (CSCO) (hypothetically of course) what do you think might have happened to the NASDAQ Composite? If you PLAN for the worse, you'll benefit from that plan in the long run.
01/04/2001 09:30 EST Update
Remember the Biotechs!
In yesterdays 2:30 update we talked about the quick turnaround the Biotech Index (BTK.X) had made after breaking a long-term trend earlier in the session. At that time our charting service wasn't working, but we've got a chart now. With equity futures looking weak early, this might be the place for bearish traders to focus this morning.
Biotechnology Index Chart - 60-minute interval.
Yesterday, the BTK.X broke a long-term upward trend and that had us looking for puts/shorts in this index with a day-traders target (thick pink) near 550. That target was achieved, but the Fed move on interest rates sparked life back into this index. I'm not aware of how lower interest rates really help the Biotechs and would be looking to implement some bearish trades in this index here this morning, just as I was yesterday at 2:30. The overriding trend (thick red) is downward trending with the 50-period and 200-period directly above.
01/05/2001 11:30 EST Current and present danger.
The BTK.X has undercut Wednesday's low, but has yet to achieve Target #2 for swing traders and current levels should be monitored closely. Short-term traders that may have "double dipped" on some bearish trades for stocks in this index have to be pleased and are at least moving their stops down to Target #1 at 550. If it kept you out of trouble once before (ahead of the Fed rate cut) it could keep you out of trouble again.
Biotechnology Index Chart - 60-minute interval.
The BTK.X is getting close to Target #2 and traders can use this level to help manage any trades they have in the BBH or other biotechnology stocks. We've marked some of the key levels of support/resistance and where some action points (alert/short) were found. Traders will notice how trend lines and moving averages were used to implement a profitable trade, and how the systematic approach to moving stops down (I call it the python approach to squeezing profits from a trade) can help when managing a position.
Global rally continues
Asian/Pacific stocks continue to trade higher after the U.S. Federal Reserve cut interest rates. South Korea and Hong Kong stock markets strung together consecutive sessions of positive gains. The Seoul Composite and Hang Seng rose 4.09% and 1.40% respectively. Although the dollar climbed to an 18-month high over the yen it didn't have a negative effect on Tokyo stocks, as the Nikkei 225 added 1.29%. Taiwan's Taiwan Weighted advanced 3.10%. A strong technology and telecom sector led gainers in Europe, but a weak opening on Wall Street cause major Bourses to ease back. France's CAC 40 was fractionally lower, Germany's DAX rose 0.62%, and London's FTSE 100 increased by 0.21%. Leading Europe's gainers were Finland's Helsinki General and Czech Republic PX50, which gained 1.16% and 1.83% respectively.