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Stocks at session's low

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We're getting a lot of positive feedback from new subscribers that are glad they didn't jump the gun yesterday and load their accounts up in call options. This makes us feel good. While investing/trading is all about making money, sometimes it helps to not lose it either.

Despite today's rather bullish consumer sentiment, stocks have sunk back near their session lows with the Dow Industrials trading 9,766 (-0.84), the S&P 500 is trading 1,127 (-1%) and the NASDAQ-Composite is trading just fractionally above its 200-day moving average at 1,935 (200-day is at 1,933).

On December 20th, the NASDAQ-Composite dipped back below its 200-day moving average and closed there, only to rebound the following session and put together a nice two-week bullish rally. At that time, the broader market internals were still healthy. Currently, it is my belief that the NASDAQ-Composite looks lower as our internal indicators have turned more bearish and have been signaling the weakness currently at hand.

Important support for bulls to hold looks to be the December 20th low of 1,918. Should we see a break of that level, we'd expect a decline to the 1,870 level at 50% retracement.

NASDAQ-Composite Chart - Daily Interval

It was tough for some traders and investors to stay off their "buy buttons" yesterday and many are glad they did today. We must remember that today is option expiration day, so there isn't a lot we can take away from today's action. Tomorrow, market technicians are going to be watching the NASDAQ-Composite closely and comparing action against that found on December 20th, when the NASDAQ dipped briefly below the 200-day moving average. Speculative bulls will be doing some buying in hear and looking for a bounce. To do so, they must be assessing downside risk to $1,870 and 50% retracement.

Jeff Bailey
Senior Market Technician
Imploding ImClone

In late December, ImClone Systems (NASDAQ:IMCL) said that U.S. regulators rejected its application to sell its colon cancer drug, Erbitux. The drug was purportedly promising for its ability to destroy cancer cells while not harming healthy cells. The Food and Drug Administration (FDA) said that it needed more information about the drug before it would allow ImClone to take it to market. At the time, ImClone didn't specify what the FDA was searching for. In the days that followed the rejection of ImClone's application, a slew of downgrades accompanied a steep drop in its share price.

A new chapter of the story is in the works today as a U.S. House panel is investigating ImClone's clinical research for Erbitux. To put the probe into perspective, the committee initiating the investigation into ImClone is the same one investigating Enron. Ugly. Prior to the halt for news dissemination, shares of ImClone were lower by $5.72, or 19 percent. The stock remained halted at the time of writing.

While the revelation of the probe is company specific, it does have other implications. For one, Bristol Myers (NYSE:BMY) controls a stake in ImClone. At the time of writing, shares of Bristol Myers were lower by $1.44, or 2.95 percent. Additionally, the investigation adds to the string of bad news in the biotech sector recently. The announcement of the probe late today caused a sharp reversal in the Biotechnology Index ($BTK), which had been higher earlier in the session. The $BTK shed 10 points in the 30 minutes following the announcement. The adverse impact on investor psychology was evident this afternoon, which could continue in the short-term.

ImClone's bearish price objective from vertical count is $15.

Eric Utley
Option Investor

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