The Broadband Put
By Marc Dupée
While the broad technology sector is up across the board
as traders continue to fade analysts’ or brokerage downgrades and earnings
warnings (Goldman’s and the semis Friday, BofAÂ Securities and Cisco and
Nortel today), let’s take a look at a sector that has been one of the most
battered and may have the most to gain once it receives the market’s full favor
again. Heavy volume draws a line in the sand which will take equally heavy
volume to soon get below. The heavy volume at the lows acts as a kind of a put
option or a near-term backdrop to establish buy setups against, similar to
identifying and using the Axe, or lead market maker, in Level II trading.
Just days ago, the Broadband HOLDR
(
BDH |
Quote |
Chart |
News |
PowerRating) exchange
traded fund
(
ETF |
Quote |
Chart |
News |
PowerRating) hit the lowest level since its inception nearly one year
ago on April 6, 2000. The BDH is similar to the Nasdaq 100 QQQs, in that it is a
tradeable instrument, that can be more easily shorted than an individual stock.
The interesting thing about the BDH is that it had its biggest volume day ever
three trading days ago on March 1, effectively doubling its next heaviest volume
outing, which registered last October when the ETF gapped down from a head and
shoulders top.
The BDH closed higher and on its high of the session on
March 1, confirming massive accumulation. Institutions obviously believe
broadband stocks have been sufficiently beaten down and are willing to risk
significant capital at the depressed level. This is a clear example of elephants
leaving footprints.
Now the stocks that institutions appeared to have most
favored, also left heavy-volume foot prints. Look at the following BDH-component
stocks. They exhibit similar price and volume patterns to the BDH (and also are
just off lows).
The heavy volume here acts as a kind of a put option in
that the heavy buying interest at the March 1 low draws a line in the sand for
protective stops. Extremely heavy volume would have to accompany a move below
the March 1 low, action you will be able to readily see should stocks or the ETF
soon drop back below this recent low.Â