Biotech, Banks Looks Best on Market Dip

World markets are mixed this morning as Europe is down for its third straight day but some of Asian markets diverge to the upside. The Nikkei is at a six-year closing high and the Shanghai Composite is also up about a half a percent.

S&P futures are down 5-6 handles, though, going on what might be its third down day. Some people want to blame it on renewed “taper talk” but I think it is just due to the overbought nature of the market. If you “actively” make adjustments we discussed taking some risk down on Friday as we had a Red Dog Reversal in some key sectors.

For example, SPY traded as high as $181.75 then reversed back below Thursdays high of $181.30, a small cautionary sign. Then yesterday the sellers exhibited more control with a close below Friday’s low of $180.80 and here we are indicating below $180ish. You had some clues for adjustments if that’s what you do.

Pressing shorts on the third down day for most of 2013 has not been the way to go. I will most likely cover my SPY hedge overlay and look for some buy signals in key stocks, but I am not in a rush. The 21-day is all the way at $178.60ish if the market wants to test it this week.

Biotechs remain the best looking sector overall.

Biogen (BIIB) has been building an upper level flag above its 8-day EMA after the nice gap up on 11/22, showing healthy digestion. A break above the short-term resistance at $298 could lead to additional momentum to the upside.

Celgene (CELG) found some buyers at the 8day EMA at $160.70 yesterday and bounced off this level to close to day up 0.83%. Look for potential upside follow-through above yesterday’s high of $163 as the stock could see a retest of the recent pivot high of $165.74.

Gilead (GILD) is also building a nice upper-level base above its 8-day EMA at above $73.60. A break above $75.45 on good volume could lead to another leg higher, so keep this trade on your radar.

Regeneron (REGN) has been building a tight bullish flag pattern that could resolve to the upside above $297.50. The stock also looks poised to break out of the descending channel that has been developing since September. A break and close above the downtrend resistance at around $295 could lead to a potential move back to highs at $320.

Alexion (ALXN) has been finding support along its 8- and 21-day EMA. A break above the current pivot high of $126.40 on good volume could bring in some more buyers.

Banks have had a slight pull-back with the market, but still looks like a sector that is re-emerging and could continue higher.

Goldman Sachs (GS) continued its grind higher above the 8-day EMA. The stock put in a new high at $171.58 but closed off of highs. Use the 8-day EMA at $168 as the upper support level if you’re looking for some continuation in this trade idea.

Bank of America (BAC) has been building a bull flag above its 8-day EMA at $15.60. A break above the current pivot high of $15.98 could lead to additional momentum to the upside.

Citigroup (C) has seen some healthy digestion after the igniting breakout at $52.50. Holding above its 8-day EMA at $52.40 would be constructive for higher prices.

Wells Fargo (WFC) has been digesting its recent rally well as it’s been basing above the 8-day EMA. The longer it holds above this short-term key moving average at around $44, the higher the probability it could see higher prices.

Morgan Stanley (MS) has continued its quest for new highs as the stock put in a new pivot high at $31.85 before seeing a constructive pull back into its 8-day ema yesterday. Use yesterday’s low of $31.30 as the new point of reference to trade around.

Tech is mixed bag, as it has been for a while.

Amazon (AMZN) had a Red Dog Reversal at $394 yesterday, signaling it might need some rest. The stock just had a tremendous run in the last two weeks or so. Some digestion above the 8-day EMA at $382 would be constructive for higher prices.

Google (GOOG) retraced another 0.5% into its 8-day EMA yesterday. See how it handles this key moving average at $1048. If it could find some buyers at this upper level, its uptrend momentum could stay intact.

Apple (AAPL) showed some slight signs of exhaustion yesterday with a Red Dog Reversal yesterday at $558 after a fast move up from $526 to $564. However, this morning AAPL is up more than 1% after very strong Black Friday iPad Air sales numbers. See if we can build on this gap up, but if not use yesterday’s low of $550.82 as the new point of reference. To the upside we have yesterday’s high of $564.33.

Facebook (FB) has been perking back up as the stock reclaimed its 8-day EMA and is holding above the down trend resistance that it broke above last week. The longer it holds above $46.20, the higher the probability it could see higher prices above $47.50-48.

Microsoft (MSFT) is acting better as the stock triggered our listed buy price of $38.30 from the Off The Charts newsletter. Look for upside follow-through above yesterday’s high of $38.78.

As we have been harping on, I think the easy money has been made in 2013, and for the rest of the year it will be an active trader’s market. As long as people try to naysay this rally, though, I think we can continue to hold higher after periods healthy digestion. Sector rotation is the name of the game, and we will continue to scan for divergences across sectors and stocks.

Disclosure: Scott Redler is long MCP, FB, BAC, GS, ZNGA. Short SPY.

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