Biotechs Bringing the Tropic Thunder

[youtube:http://www.youtube.com/watch?v=szGzAxJ0fbw&feature=related 550 412] _____________

With AMRN up roughly 94% (!) while the broad market tumbled today, the idea of playing Biotechnology stocks seems increasingly tempting, especially given their outperformance over the past few weeks. IBB, the ETF for Biotechs, looks to be in a clear uptrend. If you simply must play Biotechs, but are scared to dabble in inidividual plays given their propensity for being hand grenades, then IBB appears to be the sensible candidate.

For those of you who want more action, I give you one of The PPT‘s all-time classic screens. Below, you will find the top ten names on today’s Biotech screen. They represent those Biotechs that are being bought on strong volume. Note also that we have made it easy for you to filer out those stocks that are trading too low for you, so you can avoid (or embrace) penny Biotechs if you like.

Technically, which is how we take The PPT algorithm one step further inside 12631 (FREE TRIAL TO PPT MEMBERS THIS WEEK–Click here for details), some of the names are more extended than others.

Top Ideas: BMRN BPAX SVNT

(found 19 matches) (Includes long and short, average volume > 25k. ETFs included.) Page 1/1

No. Ticker Acc. Dist. Score Volume Score Industry Price 1 GNOM 5.00 5.00 Biotechnology 14.87 2 SVNT 5.00 3.00 Biotechnology 10.95 3 BPAX 5.00 2.00 Biotechnology 2.12 4 LGND 5.00 3.00 Biotechnology 9.93 5 ELN 5.00 1.00 Biotechnology 8.01 6 REGN 5.00 1.00 Biotechnology 49.12 7 CHTP 5.00 1.00 Biotechnology 4.94 8 CORT 5.00 2.00 Biotechnology 4.41 9 ACAD 5.00 1.00 Biotechnology 1.92 10 ZLCS 5.00 3.00 Biotechnology 2.66

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After struggling for most of the session, the bulls are on the move as we head into the final hour of trade. This morning’s plunge left us with a huge gap on the SPY (ETF for the S&P 500) above $130.60. We are currently testing it now, and a breach above it will likely bring in even more buyers in an attempt to fill the huge gap. Note that on the S&P, this morning’s gap resides above 1313. Watch those levels carefully as a gauge of how much staying power the bulls truly have, or whether this is imply a dead-cat bounce.

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One of the biggest fallacies that costs traders plenty of money is thinking that Mr. Market looks like this:

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In reality, this is a much better depiction of who Mr. Market truly is:

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In gambling and trading, after losing several bets in a row, most think: “I am really due for a win here.” So, they keep betting or, worse yet, they increase the size and frequency of their bets. The reality is that the market is far from a cute little piggy bank, dispensing $100,000 to happy-go-lucky passers-by. Instead, Mr. Market is always looking to punish you for the slightest mistakes and, when he does not punish you for mistakes, you should start to get cautious.

Today, we saw a sell-off that quickly picked up steam this morning. Thus far, the bulls have been unable to put much of a bounce together. Moreover, we have lost the 1300 support level on the S&P 500. While the temptation is to step in and buy immediately on weakness, or not cut holdings that have breached sensible stop-loss levels, the reality is that no one owes us anything, particularly Mr. Market.

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The market is obviously reacting negatively to the Standard & Poor’s downgrade of the U.S. debt outlook. Ironically, the Dollar is rallying off of this, with most risk assets getting hit hard. As if earnings season did not offer up enough variables, this development seems to have caught many traders off-guard, with the major indices down nearly 2% at the time of this writing.

In a situation like this, the only thing that you can fully trust is your stop loss, which represents one of the last lines of defense in protecting your portfolio from exogenous events. We have lost the 1300-1332 trading range on the S&P 500, and I have my eyes on 1294 as the next key support level for bulls to take a stand. However, I am in no rush to buy the dip until I see signs of buyers emerging first. A break of 1294 could easily see us testing those March support levels.

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