Option Investor
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Bends, but doesn't break

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Stock futures are on the plus side this morning with S&P futures (SP01U) showing gains of 4 points to 1,168, NASDAQ futures (ND01U) are higher by 24 points to 1,526 and Dow futures (DJ01U) are up 29 points to 10,257. Fair value for the S&P 500 today is $2.38. HL Camp and Company has their computers set for program buying at $4.04 and set for program selling at $0.72. Fair value for the NASDAQ-100 today is $4.58.

Yesterday's action looked to have some indexes teetering on the edge of what could have been a break to the downside this morning, but this morning's stronger futures indicates a market that is willing to bend to the downside, but not break.

The biotech's have come back to life. In last night market wrap on premierinvestor.net I went into great detail on how the relative strength for the Biotechnology Index ($BTK.X) had reversed back to the upside and there's some room to run here. The "big two" in the group that traders should be monitoring for progress are shares of Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BGEN). Both stocks are trading just under their 200-day moving averages and a move above those averages on a sustainable basis would be viewed by this analyst as a BIG positive for the group in general. Names I like in the group are Imclone (NASDAQ:IMCL) and Techne Corporation (NASDAQ:TECH) to mention a couple. Currently I'd be dipping my toe in the group with 1/2 positions. There are some stocks in the group I'd be hesitant of currently, so be selective and look for positive relative strength attributes of the stock vs. the group.

Semiconductor stocks ($SOX.X) are another group I think should be a group that performs well should the markets strengthen. Tonight I hope to go into detail on some relative strength screens for stocks here. One name that has held up relatively well is Texas Instruments (NYSE:TXN) and PMC Sierra (NASDAQ:PMCS) is another stock I've talked about recently on premierinvestor.net that looked to have some upside to the $36.50 level.

Software stocks as depicted by the GSTI Software Index (GSO.X) continue to under perform on the upside, and outperform to the downside. Relative strength here is negative and I'm avoiding the group where possible (on the bullish side). I think the theme here is "as Microsoft (NASDAQ:MSFT) goes, so goes the software stocks."

Bond YIELDS are key

It's the action in the 30-year YIELD ($TYX.X) that should be most troubling to equity bulls. This bond is looking "overbought" on price as YIELD has fallen to the 5.415% level. I think equity bulls want to see a sharp reversal to help get the feeling that a firm bottom can be put in for stocks. We'll watch things again today, but my current stance for bullish traders is to enter trades bullish, with the short-term trade in mind. Technically, the YIELD on the 30-year looks vulnerable to the 5.350% level. At that level, I'd expect to see a good round of selling in this bond should the 5.350% YIELD be achieved.

Jeff Bailey
Senior Market Technician

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