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Stocks recover after earlier jitters

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During our 1:00 Update, stocks looked to be recovering from their worst levels of the session after earlier jitters regarding the small plane crash into a skyscraper in Milan, Italy.

The Dow Industrials (INDU) has battled back and now trades down just 29 points at 10,190, while the S&P 500 (SPX.X) has recouped its losses and trades down just 2 points at 1,123. The NASDAQ Composite (COMPX) has also recovered to opening session lows, down just 8 points at 1,802.

Helping the NASDAQ's recovery is the Biotech Index (BTK.X) with a 1.7% gain.

Biotechnology Index Chart - Daily Interval

In our 01:00 Update, we talked about the Dow Industrials (INDU) and the S&P 500 Index (SPX.X) both having recently broken below their upward trends. We saw the same thing take place technically in the BTK.X last week, but the last four sessions has found this group getting back above this trend. We're still advising caution in this group and would expect formidable resistance at the $510 level. Shorter-term bulls can be playing the strength found here as the NASDAQ-100 Bullish % has reversed back into "bull confirmed" status and the biotech performed well from their February lows of $450 and jumped to as high as $528 under similar conditions.

In the market monitor, I made special note of these technicals as I don't want bears to get complacent with the thinking that a broken upward trend is now a "reason" to become complacent. Stocks and sectors can break trends on a short-term basis, then recover and get back above trend like we're seeing in the BTK.X.

Anytime an upward trend is broken, it is a sign of weakness and the downward trend must then be observed as the stronger trend. However, the ability of the BTK.X recovering after the break below upward trend is a sign that there is still some underlying bullishness in the group. Bullishness should it continue might indeed have broader impact on the NASDAQ Composite and the NASDAQ-100 (NDX.X). There are 18 "biotech stocks" in the NASDAQ 100 and can impact that indexes performance. According to Dorsey/Wright and Associates, the biotech bullish percent currently stands at "bull correction" status at 34.9% and would take a reading of 40% to get back into a "bull confirmed" reading. In essence, sector conditions here are very similar internally to those found in the NASDAQ-100 last week.

Jeff Bailey
Senior Market Technician
Option Investor

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