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Jeff Cooper: Biotech and the Dollar Blink

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The reversals in biotech and the US dollar are worth watching.

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Yesterday's report [subscription required] highlighted the SPX' late February time/price square-out at 2110. That was the weekly closing high on 2/20.

Last week's close was 2108.

So while Monday's N/R 7 Day (narrowest range in 7 days) may mean nothing, the late reversal into the red after being in the green all day may mean something.

For such a narrow range day, the market proved to be relatively volatile, especially in the biotechs, which went from being on fire last week to having a lack of buyers on Monday.

Last week's report Biotech Glamours On Fire [subscription required] walked through the potential for a big turning point at IBB 370 (with an outside shot at 390 on this run).

The idealized time frame was the last week of March -- specifically March 27.

On Friday, IBB left a large-range Gilligan Sell signal from opening spike gap near its 374.97 high to close at 366.52.

A Gilligan is a reversal pattern I discovered which plays out when a stock gaps to a new 60 day high but closes at/near session lows.



It will be important to gauge the behavior if IBB pulls back to its 20 day line.

Will Friday's high get tested into March 27 in a quarter-end runup in the strongest sector?

Or will we see window undressing into quarter-end in the group?

It's possible that a large mutual fund is gaming its peers to benefit performance-wise on a relative basis.

In other words, I've heard of a strategy wherea large fund that has big positions in a certain group that's been strong will take offers promiscuously a few weeks before quarter-end. This forces the competition to chase and then switch gears, and then the fund will start feeding out stock just before hitting bids with abandon. This turns tables on the competition and hurt their performance.

After all, this game is graded on a curve.

This is what it feels like happened in the biotechs Friday/Monday.

Let's take a look at the short-term debacle in several names.

ISIS Pharmaceuticals (ISIS) broke out on 3/19 but left bearish Train Tracks on Friday followed by a breakaway gap below the breakout pivot today.

In other words, it went from a new high back to the 50 day line in 2 short days getting clipped for 9 points and over 10% in the process.



Ditto Celgene (CELG), which broke out to a new high on Friday only to get rejected with authority back to its 50 day as well.



Caution is warranted as these two may be issuing Boomerang sell signals -- late-stage failed breakouts over flat consolidations.

Other names in the group that reversed strongly include Vertex Pharmaceuticals (VRTX) and Medivation (MDVN).





So there was selling across the board in the big cap and small cap bios.

Conclusion. We have a selloff in the biotechs on a spike after a persistent run, coupled with last week's reversal in the dollar and Monday's N/R 7 Day in the SPX from the level of February's square-out on the weeklies. This looks like the harbinger of something larger if there is downside follow through -- especially into quarter-end.

As a monthly SPX shows, stocks traded up toward 2000 in July when the dollar accelerated and then continued to grind higher.

However, 2015's vertical ascent in the dollar has seen the SPX carve out a wide and loose consolidation.





It looks like a large monthly tail on the dollar is on the clock which would suggest a correction over time. It looks like our April cluster of cycles should see the dollar turn its Monthly Swing Chart down on trade below whatever the low in March turns out to be. If so, the ensuing action will be critical.

Whether or not a further pullback or a major change in trend in the dollar plays out may or may not herald a major turning point in stocks.

As the above charts show, correlation can kill. That said, the reversal in the dollar is on the heels of an explosive run and underscores the notion that this March/April time frame is big.

'Big' COULD mean an acceleration if the indices trace out a low in the next few weeks.

Twitter: @JeffCooperLive

Get Jeff's commentary plus day & swing trading ideas each day with a FREE 14 day trial to Jeff Cooper's Daily Market Report.
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No positions in stocks mentioned.

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