Today's trade at the $540 level has the Biotechnology Index (BTK.X) giving an alert that this group may well be starting to break down. This action also has us building a list of potential short candidates in the group.
Traders and investors in the NASDAQ-100 Trust (QQQ) may also take note as the trust contains the following biotech stocks. Here are the symbols of stocks I have classified as biotechs. (IMCL, PDLI, HGSI, BEN, ICOS, MEDI, IMNX, CHIR, GENZ, IDPH, ABGX, GILD, MLNM, IVGN, CEPH).
Biotech Index Chart - $10 box
I consider today's trade at $540 as bearish for the biotech group. In today's market monitor on OptionInvestor.com, we quickly ran through some point and figure charts to identify some potential bearish trades in stocks that reside in the NASDAQ-100 Trust. What was interesting, but something we most often see, is the decline starts with one stock, and that decline then appears to have a frenzied and negative impact on other stocks, much like domino theory. Right now, the dominos are starting to tumble lower and it is showing up today in the supply/demand chart of the BTK.X. Remember, stock's price action impact the sector, but broader weakness looks to be building.
ImClone Systems Chart - $1 box
I think the current weakness in the biotechs started with share of ImClone Systems (NASDAQ:IMCL). Those looking to play the dominor theory should study the chart. Note the "high pole warning" then break of bullish support trend and subsequent sell signal at $60 on December 27th. Looking for others with similar technical attributes to short/put. I prefer to use put options when playing biotech downside. We never know if the stock we're bearish on can potentially find a breakthrough cure and the put option allows us to minimize our risk to that of the investment.
Idec Pharmaceuticals Chart - $1 box
Supply (O's) looks to be getting the upper hand in shares of Idec (IDEC). This was a good stock to own in early October when the group was turning higher as the stock broke above downward trend at $56. With breaking of upward trend near $65, bulls should be defensive and bears more offensive. Monitor the BTK.X and action there for weakness and strength to help you with your trades.
Another stock we're keeping an eye on is shares of Genzyme (NASDAQ:GENZ). A trade at $52 in that stock would be a triple- bottom sell signal and also break bullish support trend. Any short/put action there could use a stop just above $57.
Broader market bulls should understand current weakness in the Biotechs (BTK.X). This is a group I feel lead the NASDAQ out of the rubble in late September and early October. Now we're seeing weakness and my dampen enthusiasm for the NASDAQ. It should be pointed out that this group is not necessarily an "economic" group that trades in accordance with economic strength/weakness, but negativity in this group may not help bullish enthusiasm on a broader market scale.