We're having problems with uploading our daily updates to both the OptionInvestor.com website and premierinvestor.net website today, so I'm unable to show images in the updates, but today's trade at $14.00 in HGSI is a double-bottom sell signal and also triggers the "bullish signal reversed" pattern. While market conditions as depicted by the bullish % are still in a "bull market" phase, I don't like Professor Davis' study of probabilities for the "bullish signal revered," which is a bearish pattern that should the bullish % turn back to a bearish phase from these high levels of bullish % give an 88.6% chance of a 21.9% decline over the next 4.9 months. Another thing I don't like about today's trade action in HGSI is that after I had profiled this stock as bullish, Merrill Lynch came with a bullish call on the sector on June 11th, and Human Genome was one biotech stock that CSFB raised its price target on the day after the stock had fallen to $14.01 on an intra-day basis. It would be my thinking that if Merrill and CSFB had truly had bullish thoughts for HGSI, then the stock shouldn't have given a point and figure sell signal today.
The Biotechnology Index (BTK.X) 471.40 -2.49% is also today's leading sector loser. While I will listen to what brokerage firm research departments have to say, I will test their calls with the technicals, and since both of these bullish calls on June 11th, I'm growing skeptical, specifically as it relates to HGSI.
Stocks staged a rally from their lows late this morning and currently show mixed trade among the major indexes and various sectors we follow.
I'm a bit uncertain if the rally was simply a rebound due to this week's Triple Witching (stock option, index option and futures expiration) or if the rebound was spared by reports that Saddam Hussein's presidential secretary and number 4 most-wanted Abid Hamid Mahmud al-Tikriti was captured by U.S forces in Iraq.
Regardless, of Triple Witching or capture, stocks reversed from their lows and currently has the NASDAQ-100 Index (NDX.X) 1,250 +0.87% holding a 10-point gain with weakness in biotech being offset by gains in the Networking Index (NWX.X) 195.73 +2.3% and Semiconductor Index (SOX.X) 380.56 +2.3%. Gains in both networking and semiconductor look to be coming from the May semiconductor book-to-bill of 0.89, which was slightly above consensus estimates of 0.88, but most likely comments out of Goldman Sachs and reiteration of its "attractive" rating on the semiconductor group based on a 6 to 9-month outlook where the firm sees increasing signs of cyclical growth beginning in Q3 of this year.
Financial sector remain a laggard in today's session with the Broker/Dealer Index (XBD.X) 549.73 -1.24 off its lows of 544.07 after Morgan Stanley (NYSE:MWD) $46.79 -5.7% reported earnings that looked to have beat estimates by $0.03 per share (excluding charges), but there has been some uncertainty among traders if a $0.16 charge for aircraft impairment actually has Morgan's EPS missing consensus by 13-cent a share. Today's trade in MWD at least looks to have some traders still uncertain, if not negatively surprised by the aircraft impairment charge brought on by aircraft leases purchased in prior quarters.
Weakness among financial sectors did keep the S&P 100 Index (OEX.X) 510.54 (unch) from staging a turnaround from the lows of 507.25 (WEEKLY R1 505.13/DAILY S2 506.25) to trade within fractions of our WEEKLY R2 of 512.44 with a session high of 512.40, but selling at that level now has the OEX just off its highs. Similar trade has shown up in the broader S&P 500 Index (SPX.X) 1,012.14 +0.04% after a morning decline to 1,004.61 found support at WEEKLY R1 of 1,003.37 with rally coming back to 1,1015.12.
In this afternoon's Market Monitor, I suggested that after the rally back to 1,015 looked to be finding sellers, that trader that may have taken my bullish profiled trade in the SPX from 988 on Friday, raise a stop to 1,012. That would have traders stopped out here as the SPX did slip back to trade 1,010.00 minutes later. The reason for the raising of a more aggressive stop was based on the morning trade back near WEEKLY R1 and observation of weakness in the financials. I simply don't want to risk gains from 988 at this point with financials lagging in today's session.
The Dow Industrials (INDU) 9,293 -0.31% did manage to claw back into positive territory despite the pummeling Eastman Kodak (NYSE:EK) $28.70 -10.28% is taking after warning on quarterly earnings. One stock I've mentioned for bullish traders to consider in the Dow is shares of Altria Group (NYSE:MO) $44.18 +2.6% on the trade at $44.00, which has its Point and figure chart now showing a 3-box reversal back higher. My thoughts here are that recent news flows regarding favorable tobacco litigation along with the stocks current 5.79% dividend YIELD and developing technicals with bullish vertical count of $77, provide and attractive risk/reward trade with stop just below at $40, which over time may be raised. The stock recently gave a spread- triple-top buy signal at $43, and last Friday's pullback to $41.00 found buyers with a close at $42.74 and the stock has been progressing higher since.