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Thursday, April 9, 2015

Daily update 4/9 IBB monthly

Is that a break out?

Thanks to a late day pop in SPX it closed about 2 points above the 3/30 high.  Despite most indexes being green the breadth was slightly negative.  Kind of odd for a break out don't you think.  I find moves after 3:00 through important resistance and support quite unreliable.  Most good break outs happen in the morning. We are technically above recent resistance, but we need to see follow through early tomorrow.  You know how break outs sometimes fail.  This looks like a candidate for a failure.  New highs were 125 which is in the area they have been most days. 

The futures closed above the 100 SMA on a bullish engulfing bar.  You might recall we had a bearish engulfing bar a couple of days ago that saw no downside follow through.  Will the bulls come out to play and confirm the move above the 100 this time? 

This may be the most feeble break out I have seen in a long time.  Bob Pisani was saying that he called some trading desks and they said nobody was buying.  That is exactly what the market looks like.  The price movement is mostly being done by traders as portfolio managers are largely sitting on their hands.  Late day breaks are not very trustworthy so we will just have to see what happens tomorrow.  A strong up day could send us back towards the highs.  A weak day could turn the tide for the bears.

I have covered that IBB is clearly in a bubble.  Anybody remember the NASDAQ100/QQQ from 2000?  Check out these charts.

Eery similarity. The odds of a similar crash have to be pretty high.  When the NASDAQ crashed in 2000 it took SPX down nearly 50%.  We saw selling last spring when the biotechs were correcting.  If IBB crashes it could have seriously negative affects on SPX.  It will definitely have a negative affect on QQQ as the big cap biotech stocks are all part of the NDX100.  A sort by market cap reveals AMGN, BIIB, GILD, and CELG are all in the top 15.  I traded biotech stocks a few times back in 1999 and 2000.  I got very frustrated.  It seemed they very much traded together as a group and news in one affected them all.  At the time I was long and some company had a problem and everything sold off.  After a few times of that I swore off them for good.  Until they seemed to be affecting the market last year I never looked at them again.  I heard Jim Cramer recently make a comment about how they all trade together so I would guess that is still going on.  They are clearly in a bubble and the monthly chart is suggesting they have topped.  If that turns out be the case they will likely throw the baby out with the bath water and even the few good ones will take quite a hit.  Look what happened to the top quality tech stocks after 2000.  If you are invested in these stock mind your positions.  Even if not invested and they end up crashing realize everything might be affected.  I found out today in talking with a friend there are a bunch of rotten biotechs in IWM.  I found there are around 120 biotech stocks and another 70 or so drug stocks not classified as bios.  I only found seven of them in SPX.  From a price perspective they won't have that great of an influence on SPX.  It would be more of whether people sell more then the bios.  A lot of people watch IWM and QQQ for clues as to the strength of the broad market.  Both would be affected negatively.


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