Defense?
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.
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face=”Arial, Helvetica”>At the time this is being published,
the Globex S&P futures are trading up 1 point and the
bond market is trading up 3 ticks.
face=”Arial, Helvetica”>After a somewhat flat opening on
Monday, the Nasdaq sold off just enough to attract shorts.
Then it reversed and rallied for the remainder of the
morning. Although the afternoon was choppy, the Nasdaq did
manage to close well.
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Looking
to the Nasdaq 100, it kissed the .618 retracement (a) from
the March-to-June sell-off. Going forward, it’s important
for it to break through this level.
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The
S&P essentially went nowhere after rallying earlier in
the day. This “tail” was more pronounced in the
futures. See my
Trading Outlook for more details on this.
So
what do we do? There seem to be enough speculative issues
blasting to suggest that speculation is alive and well.
However, based on the overbought nature of the Nasdaq and
the possible stalling in the S&Ps/Nasdaq 100, you might
want to pull in your horns a bit while this situation
resolves itself. The fact that major drugs
(
$DRG.X |
Quote |
Chart |
News |
PowerRating)
were strong on Monday suggests that there may be some
renewed interest in the defensive issues.
As
someone on CNBC pointed out last week (my apologies for not
catching the person’s name), there doesn’t seem to be enough
money to go around — referring to the fact that drugs
(
$DRG.X |
Quote |
Chart |
News |
PowerRating)
and biotech
(
$BTK.X |
Quote |
Chart |
News |
PowerRating) sold off while the rest of the
market rallied. This action has left us with decent
pullbacks in these sectors even while the overall market
remains overbought.
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Looking
to potential setups, Biovail
(
BVF |
Quote |
Chart |
News |
PowerRating), in the biotechs
(
$BTK.X |
Quote |
Chart |
News |
PowerRating)
and on the
From Highs List, appears to be rallying out of a deep
pullback. Barr Labs
(
BRL |
Quote |
Chart |
News |
PowerRating), a drug
(
$DRG.X |
Quote |
Chart |
News |
PowerRating)/biotech
(
$BTK.X |
Quote |
Chart |
News |
PowerRating) on the same list, is a similar pattern.
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Continuing
on the pullback theme, Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) gapped slightly
lower on Monday, but reversed to close well. This action
forms a bullish outside day in a pullback.
On
the short side, General Motors
(
GM |
Quote |
Chart |
News |
PowerRating), mentioned recently,
appears to be resuming its downtrend. And Phillips Petroleum
(
P |
Quote |
Chart |
News |
PowerRating), in the vulnerable oil
(
$XOI.X |
Quote |
Chart |
News |
PowerRating)/oil service
sector
(
$OSX.X |
Quote |
Chart |
News |
PowerRating) and on the
From Lows List, looks poised to resume its downtrend
from a rounded-top formation.
Best
of luck with your trading on Tuesday!
face=”Arial, Helvetica”>Dave Landry
P.S. Reminder:
Protective stops on every trade!