Coming off Friday’s big day the markets took a day off from pushing higher. Biotech stocks took a big hit as there were plenty of negative stories over the weekend. Volume was certainly lower after Friday’s quadruple witching, but it was also below its 50 day average. After a big day like Friday it is always nice to see the market consolidate its gains in light volume. Today was quite a boring day, but Monday’s are usually light volume affairs anyway. We still are getting buy signals which is a good sign for this uptrend to continue. Do not fight this trend even if you think it is on its last legs. Most likely it will continue to push higher.
Biotechs for the second straight day on balanced had many more sellers pushing the entire group down. Friday we saw a big opening gap only to see sellers push the entire group lower. The selling continued today as a biotech bubble talk continues. ZeroHedge over the weekend presented a chart showing as a group the price-to-earnings ratio was 50x. Is this the same as the internet bubble? Perhaps and it very well may be a bubble, but we still haven’t seen strong enough evidence the current trend is over just yet. Sure, valuations are likely stretched. However, “irrational exuberance” was uttered by Greenspan two years before the market actually topped. At some point the biotech industry will have a correction, but at this point price has not signaled an end to this current trend.
There wasn’t much real action to talk about in the chat room today. We are watching a handful of high quality tight patterns for breakouts, but nothing triggered today. Given the pull back in the markets it really isn’t a huge surprise we didn’t see many breakouts. We did however have a few end-of-day signals we have for subscribers tonight. If this market continues to feed us stocks we will continue to rotate into those showing strength.
We will continue to execute our process and ignore the noise generated by CNBC and others. Controlling risk through position sizes and exits is paramount. Stick with your winners and shedding your losers is the best recipe for success.
