Nearly two full months after printing multi-year highs, the major indices are stuck in liminality without much identity. Technically, neither the Nasdaq, Russell, nor S&P have surpassed the 10% pullback threshold normally required for a relatively deep bull market correction, let alone a new bear market (20%-plus). Nonetheless, that is not much consolation for the all-in-long-on-margin types since September. Indeed, the sheer grind of the action, coupled with the vacuum that appears to have trapped a marquee, widely-held name like Apple, renders plenty of traders largely sidelined or at least frozen here.
Historically, a year-end rally appears to be in the cards. If that is going to happen, sectors like biotechnology stocks should be an excellent indication. They were the clear leaders for much of 2012, and were holding up very well until 10/18 during the correction. Since then, though, the rug was pulled out underneath longs and a sharp correction ensued to the IBB sector ETF’s 200-day moving average.
Last Friday, the biotechs printed what could be termed a bottoming candle, and are following-through to the upside this morning strongly. I am on watch for further strength here as cementing the bottoming thesis into year end for the biotechs and perhaps by extension the market.
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