In yesterday's 03:00 EST Update, we talked about the Biotech Index (BTK.X) and how this group of stocks would give traders a "first glimpse" of how an early sector leader dating back to late September and early October would respond to a test of its rising 50-day moving average. So far so good as the BTK.X trades up nearly 2% in a rather negative early morning session for stocks.
Biotechnology Index Chart -
A "true test" for a new bull isn't what took place on the way up. the first test is the resolve you find from bulls on the first decline after a major advance. Yesterday I felt the first real chance we were going to get to see what kind of "umph" this market may have going forward was to follow one of the first sectors to really show strength back in late September and October. That "first test" occurred yesterday and the Biotech Index (BTK.X) is responding favorably in my opinion.
Myriad Genetics Chart -
The bar chart of Myriad Genetics (NASDAQ:MYGN) with retracement overlaid gives traders some levels to monitor going forward. In this morning's "market monitor" I liked the stock bullish at $57. Today's trade at $54 and then reversal at $57 would be an intra- day 3-box reversal higher from support on the point/figure chart. While conventional point and figure charting would have us only adding an "O" to the chart today, I was a little early in profiling this stock as bullish with the trade at $57. For a 3- box reversal on the chart to really occur, we would need to see a trade at $57 tomorrow.
Immunex Corporation Chart -
My esteemed colleague and fellow trader Eric Utley liked shares of Immunex (NASDAQ:IMNX) as a "top selection" for a biotech bounce. Over time, I've learned not to argue with Mr. Utley. Both IMNX and MYGN trades were set up with the point and figure charts. Eric has been hand charting Immunex (NASDAQ:IMNX) for months and got the feeling the stock was ready to bounce!
In past commentary, we've talked about how simple it is to hand chart a couple of the stocks you like to follow and trade. It really gives you a good feel for the stock and how it trades. After awhile, you get "inside" the stock and begin predicting price action as you get a good feel for supply and demand. As you make those predictions and follow the outcomes, you begin trading with confidence and that's when traders are at there best!
We've gotten e-mail from several subscribers that are hand charting stocks that they like to follow and trade. Their comments are encouraging and it is fantastic to see such dedication among our subscribers. Get a pencil and a piece of graph paper! Also makes for a great stocking stuffer this holiday season. It's very economical too.
Reversal in YIELDS
As the trading session progresses, we've seen bond YIELDS reverse somewhat and we're actually seeing some green creep into the longer-term maturities. A bullish trader in the biotechs gets some confidence to ease into a position or two with some 1/2 positions or full positions they have confidence in as there is some selling taking place in bonds. With the Biotechs showing the greatest daily strength, this may well be where the money is slated for.
He said she said
This morning, shares of Tyco International (NYSE:TYC) have come under some selling pressure amid RUMOR that Tyco bonds are under some selling pressure due to potential capital exposure of $1 billion to Calpine (NYSE:CPN).
Tyco International Chart -
Shares of Tyco Intl. (NYSE:TYC) are trading down $2.08 or 3.6% after RUMOR that Tyco's capital arm may have some exposure to Calpine (NYSE:CPN). In recent sessions, Calpine (CPN) purchased roughly $122 million in aggregate principle amount of it Zero Coupon Convertible Debentures due April 2001 in open-market and privately negotiated transactions. At that time the company said "These purchases reaffirm our commitment and position that Calpine has sufficient liquidity to meet our current and ongoing capital requirements."
I'm noting today's break back below the 61.8% retracement of $54.39 and large volume spike from November 15th from the $55.79- $57.96 range. Over the next several sessions, we saw the stock rally on rather light volume, right up into an upper range of retracement and has started to fall precipitously. In the "market monitor" I felt the stock might be worth an aggressive bearish traders time on a break below the $54.39 level, with a stop just above today's high of $55.01 at $55.25. Traders can use the rising 50-day MA at $53.23 as a test going forward and look to target the $51.80 or $49.20 levels near-term.