Biotechs Recover to Close Well



Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.


Under normal circumstances, this would suggest a strong upside bias for the market. However, with today’s extreme volatility (which will likely carry forward), I’d use caution before getting too bullish especially in light of today’s poor performance in the bond market (yeah, I know it’s a new paradigm where the bond market doesn’t matter any more).

Today, the Biotech Sector [$BTK.X>$BTK.X] sold off but recovered to close well(a). This also forms a Trend Knockout-where a strongly trending market sells off and takes out (at least) the prior two lows. This may have shaken out the weak hands and could clear the way for the stocks to continue their uptrend. One other point, many of the stocks showed strong intraday relative strength* today — they held their own ground or actually rallied in spite of the market selling off.




MRV Communications [MRVC>MRVC] closed poorly but held up well in today’s market, finding support around Friday’s lows (a). Just wait for it to prove itself by taking out (i.e. trading above intra-day) the prior 1-2 bar highs before looking for an entry.




SDL Inc. [SDLI>SDLI], mentioned last night (see archive) and in the Strong Semiconductor Sector [$SOX.X>$SOX.X], essentially has done nothing “wrong” and still looks like it has the potential to resume its uptrend.

Manugistics [MANU>MANU], mentioned last night and in the strong Software Sector [$CWX.X>$CWX.X], sold off earlier today but recovered to close well. This suggests its uptrend is still intact.

Lycos [LCOS>LCOS], on the Pullbacks List, looks like it has the potential to rally out of high level double bottom formation or if you prefer a “two step” pullback.

On the short side, American Home Products [AHP>AHP], mentioned last night and in the weak Drug Sector [$DRG.X>$DRG.X] (and in markets like these, who needs weak drugs?), still looks poised to challenge its old lows.

Best of luck with your trading on Tuesday!

PS – Reminder: Protective stops on every trade!

*Note: This is a strategy in and of itself popularized by Jeff Cooper. Essentially, you look for strong or relatively unchanged stocks in down markets. And when the market begins to rally, these stocks often lead the way.