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Biotechs lead sector gainers

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This morning, we've been fairly active in the "hot list" on OptionInvestor.com identifying some biotechnology stocks that are on the move and at different stages in their technicals.

According to Dorsey/Wright and associates bullish percent data, the biotechnology group showed just 32% of the stocks in the group having a point and figure buy signal on their charts, but I've seen several stocks today generate buy signals and we could see a reversal back into a column of X's on the bullish percent chart from a relatively low level. Today's move by the biotech's may therefore be the first leg of a move higher.

With that thought process, I've assembled a group of biotech stocks that are showing good relative strength and trading above their bullish support trends. My thoughts here are that in an early stage of an advance, a bullish trader would want to begin positioning in the stronger stocks, then should strength continue, start picking away at some of the middle tier technicals that unfold to upside.

ImClone Systems Chart - $1 box

I like the base that ImClone Systems (NASDAQ:IMCL) has been building over the past couple of months. While the NASDAQ and S&P 500 have been setting new relative lows in recent months, shares of IMCL have been basing. The stock is acting strong RELATIVE to the market and sector. This has me thinking that this stock could be a leader should the biotechs make a run.

Relative Strength Chart of IMCL vs. SPX

The relative strength chart of IMCL is in a column of X's, which tells the trader/investor that the stock is strengthening versus the S&P 500 (SPX). The stock's relative strength improved markedly back in April and outperformed to the upside against the S&P 500. Just recently, the stock looks to have gained relative strength once again. Under current market conditions, a trader/investor might initiate just 1/2 position long and should the relative strength chart give another buy signal (44 on the relative strength chart, NOT the stock chart) then the trader could round up to a full position.

Try using some of the above techniques when identifying stocks to trade/invest in. If a stock has terrible relative strength or weakening relative strength and looks to be breaking down, then those stocks become good short/put candidates. This type of analysis will help keep you unbiased toward a stock and give you a better perspective of what the MARKET thinks about the stocks RELATIVE to other investment opportunities.

Jeff Bailey
Senior Market Technician

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