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Best Index trade I currently see

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The best looking bullish index trade I currently see in the market is in the biotechs and the Biotech HOLDRs (BBH). It's not "wishful" thinking so much as it is pattern recognition and what took place back in the summer of 2000. Maybe it is computer technology doldrums that often times prevail in the summer months that had money rotating to the biotechs. PremierMarkets.com thinks that history might just present itself again soon, perhaps in the next two trading sessions.

Biotech HOLDRS (BBH) - Summer of 2000

The above chart is what a trader/investor might have been looking at in the BBH at the close of trading on 06/15/00. I don't have a photographic memory, but try to burn this chart pattern into your brain. MACD above zero, BBH trading above relative low for 8 sessions and consolidating and 50-day MA rounding out.

Biotech HOLDRS (BBH) - Progression of Summer 2000

The reason I show how things progressed is not so much to try and say that the past will be recreated again in the future, but it sure gives traders in PremierMarkets.com profiled play in the BBH a measuring stick to monitor things by. If we're using pattern recognition and counting the days, I'd expect the BBH to begin trying to make a move above recent highs of 139 in the next couple of trading sessions. If it doesn't, it's time to start moving up a stop on the profiled trade for the July 130 calls (GBZGF).

Biotech HOLDRS (BBH) - Current to 5/29/01

"If I only knew then what I know now." We're not certain what direction the BBH is headed from here, but there are many technicals currently taking place that are similar to those found in June of 2000. It's fairly evident that a break above 139 would be quite bullish for the BBH, while a break below the 130 level on a closing basis would be divergence from past history and would have the shorter-term trader moving to the sidelines. The major difference that we've pointed out in the technicals from current day to that found in June of 2000 is that the bullish percent for the Biotech's is higher today at 80% than those levels found in June of 2000. With many bullish percent charts above the 70% level and in "overbought" conditions, perhaps the technicals currently found in the BBH represent the best probabilities of success for the bullish trader.

Jeff Bailey
Senior Market Technician

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