Signs, signs, everywhere there's signs.
Select sectors of the marketplace -- biotech and high-beta tech -- took it on the chin yesterday, and mainstay averages lost ground in the process.
While technical damage was done -- NDX (INDEXNASDAQ:NDX) 3640 and RUT (INDEXRUSSELL:RUT) 1182 were notable casualties -- the bulls will argue it was healthy sector rotation out of overbought highfliers and into previous laggards and financial shares (which remain above BKX (INDEXSP:.BKX) 71.50).
When the dust settled, the S&P (INDEXSP:.INX) again tested the all-important 1850 level (for the sixth time, by my pen) and held, empowering traders to buy the dip anew.
That sets the stage for Turnaround Tuesday, and not to disappoint, the early morning futures have followed the overseas bourses to the upside. We should also note that the German DAX (INDEXDB:DAX) put some distance between current levels and the rip cord that is DAX 9K.
The close -- stateside and abroad -- is more important than the opening, and we've seen several sessions of higher opens and heavy closes, so the technical context will remain fluid; and of course, with quarter-end five days away, we should respect the potential for the unexpected as unforeseen agendas play through.
The sector that has been in focus of late is biotech, for obvious reasons. This complex lead the tape higher the last five years -- trough to peak, the iShares Nasdaq Biotechnology Index ETF (NASDAQ:IBB) was up 368% since March 2009 vs. 180% for the S&P -- and since late February, the IBB lost 15% (the S&P is flat over the same period). Entering February, we asked the question, "Is the biotech bubble about to pop?" and that remains to be seen; thus far, it's merely deflated a bit while holding the lion's share of its outsized gains.
The answer to that question -- whether biotech is the early innings of a downdraft or a healthy rotation into fresh exposure -- is the trillion-dollar question for investors. It's been a long time since we've tossed the words "orderly unwind" around, which I suppose isn't a shocker given the proximity to fresh all-time highs.
The good news for investors is that we don't have to answer that question right here, right now; we can stair-step our exposure, much like we did when we first flagged the break of IBB 260, and let the tape show us the way. The price action in the complex, however, should remain on your radar whether or not you're currently involved.
Josh "The Reformed Broker" Brown shares his vibes on the state of biotech.
- Into the downdraft yesterday, I bought back some GW Pharmaceuticals (NASDAQ:GWPH) under $62, in real time on our Buzz & Banter, as it tested the 50-day ($61.60) for the first time since last year. This has been one of the better cannabis plays, and it trades with biotech.
Speaking of cannabis opportunities, I updated my thoughts on the space yesterday, including where I sense we are in the longer-term cycle.
- Another reason why S&P 1850 is so important? Check the cup-and-handle below.
JPMorgan (NYSE:JPM) acted great yesterday in the face of supply. That spells "real buyers" to these old eyes.
- Gold $1,300 is double secret support (50-day and 200-day moving averages).
Is now the time to buy China and short US against it? Don't know, but that pairs trade has been ricocheting around my mind.
- A little gratitude goes a long way -- now more than ever. As always, I hope this finds you well
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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