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Bulls eyeballing Biotechs

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Subscribers that have been with us for a while will remember that the Biotech Index (BTK.X) was one of the first sectors/indexes where we found some bullish signs developing back on September 27th. The last three sessions have seen lower prices for this index, but that gives everyone their first look at an early NASDAQ winner to test its upward trending 50-day moving average. Lots of other indexes just recently rallied above their 200-day moving averages and some of those indexes are just starting to see their 50-day moving averages turn higher.

Based on the bar chart and 50-day and 200-day moving averages, you'd have to look long and hard to find a sector that looks as strong technically as the Biotech Index (BTK.X). Therefore, this will be a good group in my mind to be looking for some strong stocks on pullbacks if a bull is looking to trade anywhere.

Biotechnology Index (BTK.X) Chart

On October 1st, our intra-day market commentary was riddled with bullish commentary on how the Biotech Index (BTK.X) looked to be trading strong and could pull the broader NASDAQ higher. That was near the $450 level. Well, it's been one heck of a run to $618 and it looks like things are taking a rest. But this rest will most likely be traders/investors first glimpse of things going forward. If leaders lead, then equity bulls want to see this index firm up as it begins testing its 50-day moving average.

It was the retracement bracket and the FACT that this index did NOT violate the spring lows that had us thinking this was the group for early equity bulls to be focusing on back in early October. With the pullback, equity bulls want to see firming near current levels. At a minimum, equity bulls want to see the 50% retracement hold at the 528 level.

Biotech Index Chart - $10 box

With 50% retracement at the $528 level from our bar chart, I like the cross correlation found in the point/figure chart near the $530-$540 level. Two previous times, this index has found buyers at the $540 level and we're seeing profit taking step up after a sell signal at $580. This gives equity bulls a good place to begin looking for some excellent risk/reward trades to the upside.

I'm running late with this update, but we've now laid some groundwork for future commentary as it relates to the sector. One stock I'm looking at as bullish is Myriad Genetics (NASDAQ:MYGN) near the $53 level with a stop just under $52. Eric Utley likes shares of Immunex (NASDAQ:IMNX) near the $23 level with a stop under $21.

Jeff Bailey
Senior Market Technician
Option Investor

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