On BTK ...needs to show some leadership...Calculating Relative Strength...
From one POV:
" In a declining market like we witnessed the past month, relative
strength is still very important for traders and investors to be
monitoring. One sector I still feel the NASDAQ needs to show
some leadership for the NASDAQ Composite (COMPX) to actually show
some type of sustained strength is the biotechs. This is perhaps
one of the technology groups that isn't as dependent on a strong
economy as other parts of technology. Until this group gets
moving to the upside, I'd remain very cautious for prolonged
technology investing as the biotechs can give hint of how
aggressive many market participants are going to be on the buy
side of things. If the market is going to get aggressive on the
buy side, then the biotechs are a group that has yet to make
their upward move and a group that traders and investors should
be monitoring closely.
The Biotechnology Index (BTK.X) is one group that really hasn't
"rebounded" from their recent sell off, but its relative strength
point and figure chart is still on a buy signal, but in a column
of O's.
Traders that may have been fortunate to have "bought a
bottom" in some other areas of the market may be reloading and
raising some cash and perhaps getting ready to play some stocks
in the Biotechnology sector.
" Relative Strength ".... of BTK.X vs. S&P 500 Index
premierinvestor.com
Relative strength is easy to calculate and can actually help a
trader make some risk/reward types of decisions..... It can also
help the trader set stops and bullish targets.
For example,
relative strength for the BTK.X vs. SPX is 42. This value can be
charted on a point/figure chart using the 3-box reversal system
of charting. We calculate the 42 value by simply dividing the
value of the BTK.X (422) by the SPX 1,004. This gives us a
decimal value of .4203. We can then simply multiply that value
by 100 to get a more "chartable" value of 42. Then, every day at
the close of trading, we could calculate just how the relative
strength is holding up or deteriorating. Using math basics, we
can also determine at what level RELATIVE to the SPX at 1,004
this index would reverse back into a column of X's or give us the
sell signal.
Traders that are using their retracement brackets
on other technical indicators that monitor price, will be better
able to make some buy sell decisions regarding the group and
perhaps stocks that then reside in the group or have a biotech
flavor.
What a trader might surmise at current levels of trading is that
the Biotechs are at a relative level of strength where they've
seen reversals higher in the past. For the bullish trader that
is identifying potential bullish candidates that have pulled back
to longer-term support levels, this gives them some confidence
that a bullish trade with a tight stop is a good risk/reward
trade. Yesterday's high for the BTK.X was 431 and today's
session high was 428. This gives hint that a break above the 432
level is most likely a bullish move and a trader that is
monitoring the NASDAQ Composite gets even more bullish if the
NASDAQ is moving in the same direction.
Current observation is
that the NASDAQ may have problems mounting further gains without
the help of the biotechs. |
