The BBH looks poised to move lower

Stocks attempted a modest broad-based rally
yesterday morning, but the strength evaporated in the afternoon, causing the
major indices to finish with mixed results. The Dow Jones Industrial Average
gained 0.3%, but the Nasdaq Composite lost 0.2%. The S&P 500 was unchanged. In
keeping with the recent trend, small and mid-cap stocks continued to lag behind.
The Russell 2000 fell 0.5% and the S&P Midcap 400 closed 0.4% lower. The fact
that the morning gains in the Russell and S&P 400 were less substantial than the
S&P 500 and Nasdaq served as an early warning sign to astute traders. Typically,
most broad-based rallies are led by the small and mid-cap arena.

Volume dropped off slightly in both exchanges, enabling the Nasdaq to dodge a
bearish "distribution day." Total volume in the NYSE declined by 1%, while
volume in the Nasdaq was 7% lower than the previous day’s level. It was the
second consecutive day of lower volume losses in the Nasdaq, which indicates
that the bears are, at least in the short-term, taking a rest. We have not yet
seen the follow-through day of broad-based gains on higher volume, but the
hiatus in institutional selling may enable stocks to sustain a rally if the
buyers return to the scene. Internals oscillated between negative and positive
territory throughout the day, but advancing volume finished slightly higher than
declining volume in both exchanges.

One ETF that may be poised to break down to new lows is the Biotech HOLDR
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Having been in a steady downtrend since November of 2005, it is nothing new that
BBH is showing relative weakness, but the trend appears as if it may continue
for quite a bit longer. On June 1, BBH broke out above its 50-day moving average
for the first time since March of 2006. It initially appeared as if the
downtrend was in danger of reversing, but the bears promptly sold the biotech
stocks into strength, causing BBH to fall back down below its 50-day MA only two
days later. Since then, the 50-day MA has acted as a brick wall in preventing
any rally attempt in the ETF. Yesterday’s drop caused BBH to close right at a
major area of horizontal price support. Any further in the coming days will
result in the prior lows being broken and the formation of a new 11-month low.
Consider shorting such a breakdown, but only if you are disciplined enough to
quickly cover the position in the event of sudden upside follow-through from the
broad market gains of June 15. The daily chart below illustrates how BBH closed
just above its area of horizontal price support:

Yesterday’s choppy and indecisive session did not change the overall technical
picture of the broad market. As discussed yesterday, both the S&P 500 and the
Nasdaq Composite remain in the lower third of their ranges from the June 15
rally. The Dow has been the only bright spot and has retained most of its gains
from that day. Many industry sectors remain just above or below the pivotal
levels of their 200-day moving averages. As for the direction of the broad-based
ETFs, we remain on the sidelines in "wait and see" mode. Open ETF positions
remain the Telecom HOLDR
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and the iShares 20+ year T-bond
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both long. In addition to the Biotech HOLDR setup, regular subscribers will also
see that we are stalking another industry sector ETF for a potential short

Open ETF positions:

Long TTH and TLT (regular subscribers to

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Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of
Morpheus Trading Group (,
which he launched in 2001. Wagner appears on his best-selling video, Sector
Trading Strategies (Marketplace Books, June 2002), and is co-author of both The
Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader
(McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and
Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and
financial conferences around the world. For a free trial to the full version of
The Wagner Daily or to learn about Deron’s other services, visit or send an e-mail