The biotechnology sector has been leading the market higher over the last few months, in a staggering display of upside momentum.
Actually, the biggest impetus for this rise has been the higher-than-normal short interest in this sector, as Phil Erlanger has been cataloging. Buyers are being forced by the market to "take the offer" even as prices scream to the upside, which is the very definition of a short squeeze.
Biotechnology is a great sentiment measurement for the overall market, as there are very few fundamental considerations to get in the way of the speculation in this sector. Biotech is all about the wonders of the future. It's the ultimate fantasy sector. Granted, a few times a year companies have to present at least some data on their compounds under development; so some days you can wake up with a nasty surprise and your stock chopped in half, or even catch a turbo blast to the moon, a la Genentech recently.
The next chart shows how a little bit of liquidity can go a long way with this particular group of fantasy stocks. Back in 1999-2000, the biotech index went from below 300 to over 800 (!) in a scant 4 months.
The biotech index was at 290 in mid-December 1999. Remember, this was the height of the "Y2K"....maelstrom .... that had the Fed flooding the monetary system with liquidity. All this liquidity had to go somewhere, and one of its favorite landing places was biotech stocks, with the wonders of mapping the human genome fresh on the cover of Time and Newsweek.
Liquidity just loves biotech. The same thing is happening again now, albeit on a much smaller scale.
The reason I bring all this up now is the upside momentum in this sector is clearly now running out of steam. If biotech led the market up, then it's likely going to lead the market down as well. I've been watching carefully for signs of a blow-off top, and the first serious cracks showed up yesterday.
Instead of swinging back up and blowing out again to the upside, the biotech index took a surprisingly sharp right turn yesterday on the hourly chart. This came on an opening "gap down", showing a strong imbalance of opening sell orders that were not scooped up for the first time in a long while The shorts just might be all squeezed out, and the evidence is now showing that momentum players may be more interested in booking gains than buying dips.
This could finally be a precursor to the long overdue market pullback. The bears are cleaned out and even mostly turned into bulls by now, and the bulls have profits to book, or could be worried about watching gains evaporate yet again. This is actually a recipe for a very sudden and precipitous drop, as a seller sitting on profits is much more likely to just "hit the bid" on the way down. Think "musical chairs" after the music has stopped.
There's always the possibility that options expiration could hold up this market through Friday's close. Yesterday was a typical expiration back and forth slog, which is likely to continue this morning until the Philly Fed is released at noon. Monday's ramp up off a similar Fed survey now has the bar set high for this report. We'll see about that. If the market can hold up through expiration, it becomes extremely likely that building downside pressure could be released early next week after expiration is out of the way.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained incrementally down to 0.3% full of negative sentiment. That's just a hair short of entering a new climax in bullish sentiment.
SHORT-TERM: In an advance phase, but not a powerful one.
MID-TERM: Crossed over its trigger line and move into an advance phase, rising 7 points to 40%. The Confidence Diffusion Index (CDI) moved to a bullish one (out of 7). Confidence remains extremely restrained.
LONG-TERM: Unchanged at a neutral 95/5 reading with 0 confidence.
BOTTOM LINE: If the tank hits ZERO then our CDI's will start to rise and we'll have more confidence that we're entering into a blowoff top phase with a target of SPX 1050-1080.
Because the level of the tank normalizes itself over time the absolute levels drift a bit to adjust to the market's behavior over the prior year. At this point a serious reversal signal would come if the tank were to rise over the 13-15% band.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
#forex4u - chat forex MIRC
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
