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Technology under pressure, with blue chips holding gains

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It's a tail of two markets in the early going as earlier gains in many technology stocks have been erased as the larger capitalized NASDAQ-100 (NDX.X) edges down 10 points (-0.7%) with networking stocks as depicted by the Networking Index (NWX.X) 229 -3.77% and Biotechnology Index (BTK.X) 467 -2.13% lead tech issues lower.

NASDAQ-100 percentage losers has NTAP -5.43%, VRTS -4.88%, ABGX - 4.78%, HGSI -4.77%, TLAB -4.29% and IVGN -4.04% leading the declines. After a severe two-week drubbing, ADLAC +7.10% is getting a bounce, while yesterday's debacle in Check Point Software (CHKP) $22.60 +2.31% benefit from bears locking in some gains.

Today's strength is coming from the Forest Paper Products (FPP.X) 359 +1.21% and the deeper cyclicals as depicted by the Morgan Stanley Cyclical Index (CYC.X) 567 +1.24%.

Hitting a new 52-week high and helping the S&P 500 (SPX.X) stay marginally green is the HMO Index (HMO.X) 520 +1.12%. We're expecting some resistance to come into play for this sector near the 530 level, which would be a crossing point of our "rolled up" retracement and upward regression channel we've been following.

HMO Index Chart - Daily Interval

The HMO sector has been a "favorite" of ours for the past couple of months, and it looks to be a "favorite" of the MARKET's too. I'd expect some stocks that are near their 52-week highs in the sector like UNH, OHP, THC and some others to see some selling from profit takers in the not too distant future as the HMO.X nears the 530 level. This presents the opportunity for a trader/investor that is holding some of these names to write some out of the money (above current stock price) and generate a little dividend for their account.

Of course, the trader that does so, must be willing to sell the stock at the specified strike when expiration comes around (April 19th) should the stock close above that strike. You can always buy those calls back as the bulk of your underlying capital is what is most important, but selling out the money calls in a position is a way to either work down a cost basis in the underlying stock, or generate a "dividend" for your account. It's always nice to do it on a strong stock in a strong sector too. This often times increases the probability that the stock will find support on a profit-taking pullback.

Yesterday we talked about "correlating" some trades in bearishness found between software stocks and the GSO.X. Makes sense for bulls in the HMO's to do the same with their HMO stocks they've been buying from our commentary.

Jeff Bailey
Senior Market Technician
Option Investor

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