It has been a slow squeeze lower this morning as stock were unable to hold their gains and the S&P 500 has broken below its February 6th low of 1,077 and now looks destined to test levels near the 1,057 mark. With regression overlaid, the 1,030 level looks likely in the coming weeks as "accounting concerns" seems to have buyers on the sidelines.
For the slither snake or cautious bear, current market action represents a free meal as long as traders remain disciplined.
S&P 500 Chart - Daily Interval
Conventional retracement from the September lows to late 2001 highs has the SPX breaking 38.2% retracement and bears are now going to be targeting the 1,057 level near-term. To some that is "just" a 1.5% level, but like a python, those 1/5% declines are beginning to mount to some substantial profits. To put things in perspective, bearish traders that have found some bearish trades that show gains of 7.5% or more have beaten the SPX on the downside and should consider that when a bearish trade becomes profitable by more than 7.5%. As I've said before... "a complacent bear often times finds himself hanging on the den wall."
From current levels the S&P 500 looks vulnerable to 1,057 and with the bullish % still relatively high at 57.6% there is still some risk that can be removed from this market.
One group that we are looking at for strength is showing some signs of strength today. The Biotech Index (BTK.X) continues to trade in positive territory at 484.53 +1.08% after earlier gains of 2%. However, the broader market negativity has kept things in check today.
Earlier in the market monitor, we talked about shares of IDEC Pharmaceutical (NASDAQ:IDPH) $60.48 +7.98% that was trading strong today on the heels of an FDA approval for the company to market its Zevalin therapeutic regimen. The stock is showing good relative strength characteristics vs. the S&P 500 and the Biotech Index (BTK.X), but we feel the stock needs to trade the $63 level to get above downward trend and give a meaningful buy signal at this point. The bellwether in the group Amgen (NASDAQ:AMGN) $57.59 +1.21 is usually a favorite among institutions looking for exposure to the group and this stock is a viable bullish candidate at current levels as long as a stop is place just below the $53 level.
I would recommend bulls in the group limit bullish positions at this time to 1/4 or 1/2 positions and look to add to positions on the strength of buy signals or further improvements in relative strength.
Not long ago we mentioned some triangle formations that were taking place in the market. Today, semiconductor stock Alter (NASDAQ:ALTR) traded the $21 level and this triggered the "bearish triangle" pattern at that level and also has the stock sitting right on bullish support trend. This is very similar to past action we witness in a profiled bearish trade in Celestica (NYSE:CLS) $34.47 -4.3% that has taken some time to unfold for the bears.
A trader with limited capital may want to lock in gains on Celestica (CLS) and roll some profits to a bearish trade in ALTR with 1/2 position. Since trading the "bearish triangle" at $40 on February 5th, shares of CLS have declined roughly 13.8% and more than doubled the SPX decline during that time.