One group of stocks I'd be monitoring for leadership in the NASDAQ would be the biotechs and the Biotechnology Index (BTK.X). I like to try and identify, then rank all the different sectors based on technical strength, then follow their progress one-by- one to get a better feel for the broader market. It's my belief that the stronger sectors lead and the stragglers will follow as a market bias becomes more positive. When the market bias turns negative, the weakest sectors usually fall first and then that negativity eventually reaches the stronger sectors as investors begin to sell their winners as they hold onto their losers. One strategy for successful trading/investing is to only buy strong stocks in strong sectors as we usually get a heads up to weakness when the weaker sectors begin heading lower.
Biotechnology Index Chart - last eleven months
Traders trying to get a feel for the NASDAQ might want to set an alert or at least monitor the 611-612 level on this index. A move above that level would at least be an indication that there are some market participants still committing capital to stocks. Institutions like to stick with sectors they feel will still do well down the road. This is a group that looks to have turned a corner back in late April when the sector broke above downward trend and then made a nice move higher. The recent pullback should be viewed by institutions as a level to once again start buying. It's when the pullback doesn't get bought and upward trend get broken to the downside that bullish traders should be worried.
Premier Market subscribers are probably aware that we have merged with OptionInvestor.com. You will still continue to receive live market analysis, Mr. Bailey's insightful commentaries, and my ramblings, but you will also have access to the wealth of information at OptionInvestor.com. What about the plays we were covering at Premier Markets? Fret not; we will not leave you hanging.
Dynamic Materials (BOOM) After running up nicely, our micro-cap stock has had trouble getting above $3.15. To lock in some profits, we are raising our stop to $2.75.
Barrick Gold (ABX) Barrick Gold has had trouble getting above $17.51 since we profiled it on 5/25/01, so we are going to be raising our stop to $16.30.
Computerized Thermal Imaging (CIO) We were stopped out of our half position in CIO today when the stock traded $3.25.
We will continue to keep you updated on our remaining positions, and all new plays can be found in the strategies section of Option Investor.
Premier Markets Play Update