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A fly in the ointment

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Today's trading session started out with a bang. Treasuries found good selling early on as YIELDS rose and stock were higher out of the gate. Many traders were met with "upside alerts" being hit on their trade stations, but some stocks may have backed off their best levels of the session and now trade below some entry points.

What is one to do? Often times the best trading plans and scenarios look so "certain" and then we get pounded with negative anthrax news and confirmation that the two postal employees that passed away yesterday, did indeed die from anthrax exposure.

Bullish traders need not give up hope for higher prices. If you're trading scenario had you long in shares of Protein Design Labs (NASDAQ:PDLI) at the opening of trading at $31.35 then you were long for a reason. My trading scenario said, "get long on a break above $30.85 or 50% retracement. I followed the plan.

Protein Design Labs (PDLI) Chart -

My trading plan called for bullish entry on a break above 50% retracement of $30.85. PDLI traded $31.35 at the open and triggered my upside alert at $30.85. With bond YIELDS higher, Biotech Index (BTK.X) trading higher and S&P 500 Index (SPX.X) trading above the 1,082 level it was hard to resist a bullish trade in shares of PDLI.

Is a bullish trader worried with the stock down 1.98% at $30.14? I'm not. Worried and happy are two different things. I'm not happy, but I'm not worried either. One of the main reasons I like the stock long was that its relative strength was strong vs. the Biotech Index (BTK.X) and the Biotech Index relative strength was strong vs. the S&P 500 Index. I did just about everything possible that I could have when identifying this stock as a potential bullish candidate. If the stock's relative strength were negative vs. the sector or broader market average, then I could "blame" current performance on my inability to properly assess the stock/sector/market, but now I trade the plan as previously outline. Buy $30.85, stop $26.56 and target $39.88. Of course, the numbers aren't set in stone (except the stop, never change your original stopping point unless you're moving the stop toward profitability).

If you're a believer in relative strength, your ability to identify levels of support/resistance then you will have confidence. Do all trades end up winners? No, not all of them. But if you've done your homework then you will have enough confidence to let the trade run its course and follow your plan. While I'd be happier with PDLI trading $34.30 right now (last night I was certain the stock would achieve that level today) I'm not willing to give up so early in the game. MACD is above the zero level and the 50-day moving average is beginning to round higher. Hang in there. We'll follow this one and it will help us with some of our other observations regarding the current market environment.

Jeff Bailey
Senior Market Technician
Option Investor

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