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Nowhere to run....

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Technology bulls are wondering just what the heck is going on as earlier session gains have been erased and have turned into losses. The NASDAQ-100 Trust (AMEX:QQQ) did trade the $38 level, giving us a double-bottom sell signal on the point and figure chart and now putting into place a preliminary bearish vertical count of $33. The "outward" appearance of the QQQ and the NASDAQ-100 are starting to resemble the internals of the NASDAQ- 100 bullish percent ($BPNDX) that we've been alerting traders to for the past month. Technology stocks still look defensive as the MARKET continues to remove risk from the technology related stocks.

NASDAQ-100 Trust Chart - $1 box

The bullish percent was saying "be careful" to technology bulls as they assumed the bulk of the risk. Today we got the double- bottom sell signal, which tells us the outward appearance of the patient is starting to reflect the weakening internals. Look for some firming near the $36 level for a tradable bounce, but expect bears to be shorting rallies near the $40 level. If we get a bullish percent for this group back below the 30%, we might well expect the QQQ to be trading near the $33 level, which was where a pullback occurred in early November (red B).

What I'll be looking for is what we found back in late September. In late September, the biotech's and the Biotech Index (BTK.X) was the first group to really firm up and begin making some advances. Today's current 1.5% gain in the Biotech Index (BTK.X) is near-term encouraging for technology bulls, but there's a long way to go for bullishness to be found. The biotechs have been under some heavy selling pressure in recent weeks and there will be some bears covering and locking in gains. This is prudent account management and I'd suggest all bears take opportunities to lock in some gains as they get them. This can be done with partial position short covering (if you're short 1000 shares, buy back 500 when you get a nice profit in your short or if you're long 5 put contract, sell 2 or 3 for a profit).

Jeff Bailey
Senior Market Technician
Option Investor

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