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Market Updates

Watch the Biotechs

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Traders may want to keep an eye on the BTK.X at current levels. Notice how an "old" support trend acted as resistance this morning near the opening of trading? Looks like a bearish trade might be in order on a break below 570. With the broader markets positive, make note of today's 1.4% current decline in a bullish market. This note might come in handy if the markets decide to pull back.

Biotechnology Index Chart - 60-minute interval.

If there's one group Indexskybox.com bearish traders have been having success, it's been in the BTK.X. Bearish traders have achieved Target #1 twice and Target #2 once. Will this index test Target #3 eventually? I'm not sure, but bearish traders did well if they bought puts on this index or traded bearishly the day after the Fed cut interest rates and the index rallied to 630. The "market" sure seems more positive now than it did in early January, but this index continues to set lower highs and lower lows. If bearish traders have had success in a group, chances are they'll be back for seconds. If there was ever a good example of "support broken becoming resistance" this might be it.

VeriSign Update

Shares of VeriSign (NASDAQ:VRSN) are trading near their sessions high and bullish traders are doing well. Traders will also want to monitor the GSTI Software Index (GSO.X) and monitor its progress. Has that index traded above 320 yet?

VeriSign Chart - 60-minute interval.

Aggressive traders that don't want to let a profit slip away can either lock in profits here, or use level (C ) at $87.38 as their stop. Since the opening bell, shares of VRSN have NOT traded below the previous interval low. Las hour's low was $87.43, thus our aggressive stop at $87.38. This is what I call, "give me an excuse to take a profit" type of trading.

GSTI Software Index Chart - 60-minute interval.

While shares of VRSN have NOT violated a previous hourly low, this in NOT true of the GSO.X which traders can see from the above chart. Aggressive traders should take note of this and be moving up their stops in VRSN. If I'm seeing weakness in the group on a 60-minute chart, chances are that this "weakness" will eventually catch up to even the "strongest" of stocks in the group. A pullback to 300 in the GSO.X and its 200-period MA would not be out of the question. If that were to occur, where could VRSN pull back to? I'd only be guessing, but $80 doesn't seem unreasonable. I'm not saying it is GOING to happen, but planning for if it does happen.

NASDAQ-100 Index Tracking Stock - 60-minute chart

Yesterday, some traders of Indexskybox.com may have been holding a half-position short in the QQQ's. Today, this index broke above our downward trend, but DID NOT confirm a break of trend as this index never did trade above $66. While a stop was set on the trade for a break above the 200-period MA at $62.75, the "gap up" may have had traders waiting to see if confirmation was broken before taking the loss. This type of trade may be OK for some, especially if you were "hedging" that trade with a long in VRSN. Traders that are short the QQQ's and long VRSN have created somewhat of a hedge and have a good feel for market strength/weakness. If the QQQ's start breaking down and VRSN starts showing weakness, that would be reason enough to lock in profits on VRSN and stick with a short in the QQQ's. If the QQQ's were to then pull back to the 200-period MA at $62.75, then the trade could be closed out for a smaller loss than would have been occurred by chasing the open.

Jeff Bailey
Staff Analyst

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