In yesterday's 01:00 updates at OptionInvestor.com and premierinvestor.net I thought that bullish traders might want to test the waters in a bullish trade in Dow component Johnson & Johnson (NYSE:JNJ) $58.70 +4.2% and look for a trade at $57 to hint that demand was back in control.
Today's bullishness in Johnson & Johnson (JNJ) as well as NYSE listed Boston Scientific (NYSE:BSX) comes at the expense of Guidant Corporation (NYSE:GDT) $27.76 -15% after a judge blocked GDT's development of a drug-coated stent. Industry observers regard the judge ruling as favorable for JNJ as it gives the company 100% of the coated stent market in 2003 to JNJ, and JNJ and BSX will share the coated stent market share in 2004.
While today's trade at $57 was important from the point and figure chartist perspective, the trade at $58 was equally important as it "negates" the potential for a "bear trap" pattern to have been in play. Point and figure chartists "know" that a "bear trap" would have been set up by JNJ trading 1-box above a triple-top, but then quickly reversing lower in the following sessions. As you can see, today's trade at $58 exceeds the triple-top by 2-boxes.
Johnson & Johnson (JNJ) - $1 box
I'm kind of glad I didn't know of today's news regarding the Judge ruling regarding the blocking of Guidant Corporation's (GDT) coated stent, but "ironic" perhaps in the hints of bullishness we pointed out in yesterday's commentary.
Had I known anything about the "coated stent" market, which I don't, I might have also seen some bullishness in the Boston Scientific (BSX) $35.85 +10% point and figure chart.
How interesting perhaps is hints of "bearishness" in Guidant Corp's point and figure chart (NYSE:GDT).
Guidant Corp. Chart - $1 box
A trader/investor that was perhaps following the drug group and knew something about the "players" in the coated stent market may have noticed some DIVERGENCE between JNJ and BSX's point and figure charts when compared to that of GDT. What a day today would have been if short/put GDT and long/call JNJ or BSX!
Traders and investors that can take a sub-sector or group of stocks that are "sensitive" to a specific type of product/market can often times look for DIVERGENCE and profit from that divergence. At the same time, if you find a certain "group" of stocks with some type of niche exposure all looking bullish or bearish, then some good traded in the direction of interpretation can be found. I've always found my best trades come from observations of DIVERGENCE.
Broader Market Update
Stocks are rather mixed when looking at the major market averages with marginal gains and losses being found.
Sector action has the Semiconductor Index (SOX.X) 260 +4% leading tech gains, as the NASDAQ-100 Index (NDX.X) 873 +0.33% has big tech holding a marginal gain. Weakness is found in the fiber optic area as depicted by the Fiber Optic Index (FOP.X) 27.48 -2.38%.
Today's weakness in the banking sectors (BIX.X) 275 -2.5% and KBW Bank Index (BKX.X) 707 -2.3% has kept the S&P 500 Index (SPX.X) 843 -0.5% near the unchanged level all morning. Creating some concern toward financial was Comerica's (NYSE:CMA) $41.50 -17% announcement that it will record a $328 million charge ($213 million after-tax) or $1.21 per share) related to incremental provision for credit losses and goodwill impairment for the company's Munder Capital Management subsidiary.
Volume at the NYSE is a little lighter than we've seen the past couple of sessions at this time, with just under 1 billion shares traded. NASDAQ volume is just above the 1 billion mark here.
Breadth at the NYSE is even, while NASDAQ breadth is ever so negative with decliners outnumbering advancers by an 8 to 7 margin.
The NYSE shows new high versus new low breadth rather even with 63 stocks trading new 52-week highs versus 64 stocks at new lows. That's BULLISH compared to the NASDA having just 15 stocks at hew highs versus 161 stocks at new lows.
On a daily breadth observation, these breadth indicators hint that institutions may be doing some buying as they tend to focus more on NYSE listed stocks from the "buy side" if a recovery from the lows is thought to be in play.