Defiant Biotechs
Few events can shine a spotlight on
relative strength like a weak market. In the face of selling Friday, stocks like
Myriad Genetics and Protein Design Labs.Â
I don’t go long when the general
market trend is down, but I put these defiant names on my watch list. When the
market turns, the momentum leaders will largely be those that gave up the least
during the hard times. Then I buy the first names that break out of
correction-recovery patterns on strong volume.
Myriad Genetics
(
MYGN |
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PowerRating), enjoyed
bullish analyst comments, jumped 5 5/8 to 69 1/4, clearing its mid level of
around 67 1/2 and closing just below its 50-day moving average on nearly twice
its usual trade. This was the stock’s second straight advance on rising, strong
volume.Â
Once the biotech clears its 50-day, it
will have passed all three of my tests for overcoming overhead supply: a trading
level above the 50- and 200-day moving averages and above the mid level.
Protein Design Labs
(
PDLI |
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PowerRating) surged
12 9/64 to 124 61/64 on double average volume. The stock closed near the high of
its range and formed a bullish engulfing pattern. The stock is already above its
50- and 200-day moving averages as well as its mid level, which is just under 97
1/2.
Both stocks benefited from a strong
sector as measured by the Amex Biotech Index
(
$BTK.X |
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PowerRating), up 5.6%, and
Merrill Lynch’s Biotech HOLDR
(
BBH |
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PowerRating), up 5.8%. Biotech has a special appeal
for the momentum trader. On one hand, biotech behaves like a growth sector. On
the other hand, these stocks often part company on a short-term basis with other
technology stocks, providing, notably, some negative correlation to the troubles
in semiconductors.Â
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find a mother lode of lessons in the Money
Management area of TradingMarkets’ Stocks Education section.