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Biotechs look to have fueled turnaround

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I no of no news that has stocks turning higher, but the group we have been thinking would be a key group for bulls to be watching and trading bullish in sure seems to have turned the markets higher as the sessions progresses.

The Biotechnology Index (BTK.X) was the first technology sector to show some gains today and their extended gains higher sure seemed to be a trigger for a reversal in the broader markets. We thought the market was looking for a leadership group to cheer on and I think we've found it.

Biotech Index (BTK.X) - 60-minute interval

The move above the 528 level on the 60-minute chart sure gives you the feeling that there were some bearish traders that turned to cover in the past couple of hours and drive the BTK.X higher. Now we monitor the next level of potential resistance at 562 and look for support to firm at 528, just as the 61.8% retracement level of 492 and rising 50-pd MA did two times before.

Fast movers

In our 01:00 update, we mentioned shares of Veritas Software (NASDAQ:VRTS) as a stock for bullish traders to be keeping an eye on as a bullish stock to trade. Since that time, shares Veritas (VRTS) have surged an additional 3% since our 01:00 update and pattern recognition might be a part of today's move in Veritas.

Veritas Software Chart - 60-minute interval

I talk a lot about "domino theory" when it comes to trading. I'd place the software sector several dominos down the chain from the biotechs, but there are some similarities beginning to develop in the software group like we saw in the biotechs back in late September. Relative strength for the group is improving markedly and we're getting some good "buy signals" from stocks on their point/figure charts. When we look at VRTS's 60-minute chart, we can see some similarities to that of the biotechs 60-minute chart several weeks ago. That similarity may be planting the seed for a move to the $39 level as long as the 50-pd MA continues to act like support.

Jeff Bailey
Senior Market Technician
Option Investor

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