Yesterday's reversal in the narrow NASDAQ-100 Bullish % ($BPNDX) to "bull correction" status at 81% after the recent bull cycle high reading of 91% has us monitoring the various sector bullish % and noting that the biotech sector bullish % (BPBIOM) from Dorsey/Wright and Associates reversed lower to "bear alert" status as multiple stock within the sector generated new sell signals after a bullish run higher in March.
While the Biotechnology Index (BTK.X) 456.02 +2.78% recovers from a 2-day decline of roughly 8% in the index, the reversal to "bear alert" in the sectors bullish % indicator begins to show some internal weakening.
One stock I'm looking at for further weakness is shares of Abgenix (NASDAQ:ABGX) $10.33 +4.99%, which rebounds nicely today after giving a double bottom sell signal yesterday at $10.50. Earlier this month, the stock traded as high as $14.50, which came just shy of its longer-term bearish resistance trend of $15.50, which was put in place in January when the stock broke below its bullish support trend at $29.00. I'd look for a 3-box reversal back up to $11.50 on the point and figure chart as a good short/put entry point to then have the bearish vertical count that is currently building at $7.00 to be in place. A reversal back near $11.50, would then allow a tighter stop to be placed on the stock just above the $13.00 level and provide downside target to $7.50.
Per prior suggestions regarding BEARISH trading in biotechnology stocks, I've always preferred the use of put options as a way to mitigate risk when trading bearish specific stocks. As some traders have once again had to learn in recent months that short the underlying stock, the pain can be substantial when your short the underlying shares of a stock the MARKET suddenly thinks can provide a cure for life threatening diseases. The most recent example has been Genentech (NYSE:DNA) $74.66 +0.79%, which launched from the $40 level May 19th after announcing positive results from a Phase III study of its Avastin drug.
Shares of Celgene (NSDAQ:CELG) $32.07 +2.49% may be placed on a trader's watch list. Yesterday's trade at $31.00 did create a double-bottom sell signal, but the sell signal came right at the stocks rising bullish support trend. For downside action, I would look for a reversal back near $34, but then look for short/put entry point on a trade at $30 (50-day SMA currently at $29.79), which would then be a break of bullish support trend and generate a spread triple bottom sell signal. With the sector currently in "bear alert" status, I'd then refer to Professor Davis' study of probabilities, which would have the spread triple bottom pattern showing profitable 86.5% of the time for an average gain (decline) of 24.9% in 4.6 months. It is notable that CELG has been a very good/steady upside performer since the stock broke above its bearish resistance trend in October of last year at $18, generated a spread triple top buy signal at $18.50 and has not given a sell signal since then, until yesterday's trade at $31.00.
I'm still going through some PnF charts of this group looking for potential bearish trades and if I find some more, will update in the OptionInvestor.com market monitor and intra-day commentary.
Today's Triple Witching expiration has see little volatility.
The Dow Industrials (INDU) 9,224 +0.49% have backed off their highs of the session at 9,276. Dow breadth, which was positive at 26 to 4 at the 11:00 hour now stands at 21:9. Intel (NASDAQ:INTC) $20.86 -1.23% is now at session lows as is Home Depot (NYSE:HD) $32.57 -1.06%, which were two of the weaker 4 decliners at the 11:00 mark.
The S&P 500 Index (SPX.X) 997.91 -0.32% had slipped back below the 1,000 level. The Dow Jones Home Construction Index (DJUSHB) 450.27 -3.33% continues to be today's sector loser, with KB Home (NYSE:KBH) $65.57 extending losses after blowing away analysts quarterly estimates this morning. Some chatter among analysts is that even though the company further raised guidance, the growth rate of that guidance has the stock looking a little expensive.
In yesterday's market monitor I discussed a the double-bottom sell signal that fellow homebuilder Centex (NYSE:CTX) $79.99 -2.54% had generated at $82, and partial bearish positions here see CTX currently testing its rising 21-day SMA at $80.00.
Dorsey/Wright and associates classifies both KBH and CTX as being in their "building" sector bullish % (BPBUIL), which as of yesterday's close was still "bull confirmed" at 69.67%, but has slipped back from a 72% bull cycle high reading. It would take a reading of 66% to turn "bear alert." Shares of KBH would not currently give a sell signal on its point and figure chart until $60 were traded.
For the homebuilder, which can be sensitive to mortgage rates, we're seeing both the 10-year and 30-year Treasury bond YIELDS higher in today's session. Both YIELDS are used to derive mortgage rates. The 10-year YIELD ($TNX.X) is rising 7 1 basis points to 3.412%, while the 30-year YIELD ($TYX.X) is higher by 6.8 basis points to 4.48%. Earlier this morning, both bonds were relative unchanged with the 5-year YIELD higher, which created a flattening YIELD curve early. As the session progresses and bond traders look to position ahead of next WEEKS FOMC meeting, the YIELD curve has flattened, and may have brought in some selling on equities. Still... with Triple Witch nearing and end, it is difficult at best to analyze today's trade with much certainty.