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The market opened higher today, but, started to slide in late morning. Biotechs were particularly weak: OSIP -8.29%; GENZ -6.43%; CELG -5.1%. Health care stocks were even worse: HUM -19.48%; AET -11.26%; CI -8.54%! Today's big drop in these two sectors came as more details in Obama's proposed budget were revealed. Private insurance plans and drug manufacturers are among the companies that will be facing cuts. Some people were "surprised" by today's big downturn in the biotechs and health care. But, these sectors did not just drop today. Most of them started sliding two weeks ago!! President Obama has made it very clear that health care reform is among the top issues that the new administration will focus on.
For instance, let's take a look at IBB, the Nasdaq Biotechnology Index (This will further review some of the points that we talked about 2 days ago on ESI and GS):
IBB (3-month Daily Chart)
1) IBB recently peaked on 2/9 and started sliding.
2) On 2/17, the chart showed a "bearish" crossover in the MACD
3) On 2/23, the 10-day MA (the "red" curve) crossed below the 20-day MA (the "cyan" curve). As you might remember, when this happens, the bullish formation is dissolved.
What followed was couple of days of sideways fluctuation; then, a big downturn, falling off the cliff! If you read the article from 2 days ago on ESI, check out what happened to ESI today. It went as low as $103.51 from yesterday's close of $117.29!!
Let's take HUM, a health care stock:
HUM (3-month Daily Chart)
Similar development here. On 2/23, the 10-day MA curved lower and crossed below the 20-day MA. The volume was particularly high. 2 days of fluctuation followed. Then, it dropped precipitously today!
Thus, the charts had showed more than a week ago that these stocks were getting weaker. 3 days ago, the charts started to show high probability of these stocks falling much lower. There are much fundamentals hidden in the charts. This is because people who trade the stocks start to push the stocks a certain way "before" the big move finally happens. People who purposefully push thetock a certain direction often know something fundamental about those stocks. So, when you see something "particular" happening on the charts, especially when the volume is high, you should take note and suspect that something "big" is about to happen. You can then take the time to do some research to find the fundamental facts that may support the move that you're seeing on the charts. Like I've said, in a volatile environment such as the one that we are in, "Fundamentals are important, and technical analysis in indispensable"!
Good night and HappyTrading! ™
