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Stocks trade sideways after lower open

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Stocks have been edging higher after a lower open, but still remain stuck in a range after this morning's lower open. Most stocks have managed to recover from earlier lows, but it is the biotechs that continue to show good strength. Action here is very similar to what we saw back in late September when the biotechs seemed to firm and then head higher and eventually drag the other index along for a nice bullish rally into the end of the year. Can they do it again is the question that remains to be answered. For technology bulls, this may well be the group to be looking for breakouts or entry points on pullbacks.

The biotechs as depicted by the Biotech Index (BTK.X) are showing good relative strength today with an impressive 4.8% gain at $523. We've had numerous readers e-mail us looking for the symbols of the stocks that make up the Biotech HOLDRS (AMEX:BBH) so here they are.

Biotech HOLDRS Components - Sorted by stock symbol

If there was any question on just how important "sector" analysis is, then today's Biotech HOLDRS (AMEX:BBH) $122 +2.73% list of stocks may be proof that when a sector heats up, it tends to raise the prices of the bulk of the stocks in the sector. At the time of this screen capture, not one of the components were trading in negative territory. From here, subscribers can run some relative strength comparisons and look to identify a couple where their relative strength is outperforming the sector. Equity bulls have learned it is often the best trading scenario to trade strong stocks in the sector under a bullish sector move.

Components for the Biotech Index (BTK.X)

The components for the Biotech Index (BTK.X) are different that that found in the Biotech HOLDRS (BBH). There is some duplication, but also some differences. Here's a quick snapshot for those stocks that make up the Biotech Index (AMEX:BTK.X).

Biotech Index (BTK.X) Components - Sorted by symbol

Not unlike the BBH, a bullish trader could probably have owned "any" biotech stock in the past couple of days and done well from the bullish side as the group rebounded from the lows. Currently we're trying to identify some stocks in the group where relative strength gives hint that the stock is a "standout." One stock we mentioned last week was the "big gun" in the group in shares of Amgen (NYSE:AMGN). It is considered the sector bellwether stock and relative strength is favorable. First sign of trouble for a bullish trader in Amgen (AMGN) would be a trade at $53.

Bond action

Even with today's "FBI alert" on potential terrorist threats here in the U.S., the bond market has seen some fractional selling and does not seem overly concerned about things right now. While we did see some "fear" come into stocks near the open of trading, current sentiment from the market action looks like there is still some underlying bullishness.

My current thoughts are for bulls to trade cautious. In Friday's market wrap on premierinvestor.net I talked in depth about shares of Phelps Dodge (NYSE:PD) $36.15 +0.24% and still like the stock here after yesterday's break above downward trend. Near-term target remains the $40.50 level and is what I believe a rather "conservative" way for bulls to play the current market environment.

Jeff Bailey
Senior Market Technician
Option Investor

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