NYSE Pharmaceutical Index Catching Wind

$DRG, the NYSE Pharmaceutical Index is finding renewed strength after a six week downtrend. The index broke downtrend resistance today around the $500 area. That came with follow through of my MACD 9/20/9 crossover plus strength versus S&P 500 ($SPX). This for me is a strong bullish signal so I decided to take a closer look.

NYSE Pharmaceutical Index ($DRG) - April 21, 2014

NYSE Pharmaceutical Index ($DRG) – April 21, 2014

$DRG could find overhead resistance not too far ahead from $503 to $505. From there next resistance is between $510 and $512.60 before setting new highs.

$DRG has also recaptured the 10, 20 and 50 daily moving averages though the 10-period remains below the 20-period. Both are sloping up. Pivot point is at $500.58 while R1 pivot support is at $513.77 this week.

$DRG Pharmaceutical Index with SMA's, Bollinger Bands, Keltner Channels and Pivot Points - April 21, 2014

$DRG Pharmaceutical Index with SMA’s, Bollinger Bands, Keltner Channels and Pivot Points – April 21, 2014

In addition, the $DRG/$SPX ratio is turning positve with both 9-period and 20-period EMA’s now sloping upwards. On the chart below we are also getting the MACD crossover I like to see in bullish charts.

$DRG vs $SPX - April 21, 2014

$DRG vs $SPX – April 21, 2014

All this looks very good so I took a look at the components within. Equities listed below are only listed in alphabetical order.

Actavis, Inc (ACT)

ACT is trading in a downward trend channel very similar to $DRG coming just shy of trendline resistance breakout today. I’d like to see the 9-period EMA get back above the 20-period but on trendline break I would make an exception. Resistance points above are the 50-period moving average near $207 and sloped positive, pivot resistance and minor price resistance near $210.50.

The biggest option trade today on ACT was May 14 calls at $220. One buyer bought 100 contracts at the bid of $1.60. This is a $160,000 bet that ACT will close above $221.60 by expiry May 23.

103 August 14 $210 calls were traded at $11.40 with a bid x ask spread of $11.20 to $12.00. 50 Aug 14 150 puts traded at $1.89. Of the May contracts, $210 calls have the highest open interest near 5,500 but only 100 contracts traded today. BxA spreads are 3.90×4.30 on close.

ACT reports earnings pre-market next Wednesday, April 30.

Actavis will attempt to break downtrend channel - April 21, 2014

Actavis will attempt to break downtrend channel – April 21, 2014

Bristol Myers Squibb Co (BMY)

BMY also is attempting to break a multi-week downtrend and may have done so on the close today at $50.51. Follow-through tomorrow would confirm. The MA alignment is all kinds of jacked up with the 20 and 50-period SMA”s huddled just under pivot resistance in addition to possible pricre resistance between $52 and $52.77. Continuation tomorrow with stops at today’s close should yield sufficient risk/reward.

May 14 $55 calls saw the most action today with 4,852 contracts traded leaving an OI of 5,620. The $50 calls maintain the highest OI however at 8,405. Highest OI on the put side would belong to the $50 strike with 8,705. However, by far the volume activity was confined to the $52.50 and $55 calls.

BMY reports earnings April 29 before market open.

Bristol Meyers Squibb looks to break multi-week downtrend as well

Bristol Meyers Squibb looks to break multi-week downtrend as well

Eli Lily & Company (LLY)

LLY broke short term resistance to a new high today closing at $60.86 just $0.03 off the high set in the last five minutes of trading. LLY has great moving-average alignment for both sets of 9-20 EMA’s and 10-20-50-100 SMA’s. The one minor concern is the close came just over the upper Bollinger Band (20, 2.0) so LLY will need some considerable momentum to stretch volatility. LLY has done this twice this year alone first in mid January and again in mid February leaving a still-open 2.4% gap.

On the option front, 3,094 calls were traded today versus 1,430 puts. Most notable was 172 Jul 14 $60 calls purchased at the ask of $2.14. Ninety-eight Oct 14 puts were sold on a BxA of $2.18x$2.18. May 14 $60 calls have the highest open interest of 10,743 while puts are significantly outnumbered with OI greated on the same expiry and strike. Implied volatility on calls is at 63% with a 52-week high of 148% and a low of 31%.

LLY reports earnings pre-market this Thursday, April 24.

Eli Lily and Company, April 21, 2014

Eli Lily and Company, April 21, 2014

Novo Nordisk  (NVO)

NVO is another one of those on the edge of breaking a multi-week downtrend channel. At a $44.54 close NVO seems to want to test next resistance near $45.50. Pivot resistance is right above. The chart is not as clean as LLY with misalignment on the ten, 20 and 50-period moving averages plus the 9-period and 20-period EMA’s inverted. But my MACD is bullish which warrants a spot in the bullish watchlist.

May 14 $81 calls have an OI of 1,491 versus 1,016 May$77 puts; those were trading between $0.12 and $0.22 at the close while the calls were on a $2.88x$3.10 BxA. Call to put ratio was over 2:1 with 1,778 calls traded today versus 869 puts.

NOV reports earnings pre-market April 28.

Novo Nordisk - April 21, 2014

Novo Nordisk – April 21, 2014


Trade Analysis – IWM April 19 $108 Puts

On April 14, IWM was trading within a consolidation range after another down leg the previous week. The morning saw a gap up of 0.85% and then quickly gave it all back within the first 30 minutes of trading. IWM would then bounce and set a new intraday high at $111.97. IWM then pulled back within the 9/20 EMA and found a consolidation range that would last almost two hours. In the 13:15ET bar, however, IWM seemed set to break down from this consolidation range with a lower low. A bounce back to within the now inverse 9/20 EMA along with a bearish MACD set up a great short entry point around the $111.30 area.

Unfortunately, nerves kept me from pulling the trigger. The low of $110.63 I felt was too close and not much of a risk/reward position. Even seeing this action, I regretted missing it. But I missed it.

IWM found a sustained downtrend with momentum. I missed two more pullbacks not able to get orders in fast enough from my phone before finally getting in on $108 puts for $0.33/each. Unfortunately, this came right before another consolidation pattern, though short-lived. On entry this was expected to be a day trade as I did not feel the daily consolidation was enough to break oversold conditions.

Thirty minutes after entry, IWM continued it’s downtrend and swiftly gaining momentum (notice the steep downswing on the MACD histogram on the 5-minute chart). When the low of $109.65 was put in I felt there was more downside remaining with another lower low on this pullback. However, IWM snapped back quick. Fifteen minutes into the bounce I was stopped out at $0.39 for 15% gains. These contracts peaked at $0.57. Definitely some lost cash.

To start, entry was horrible. Entry should have been taken at the 12:55ET position when IWM pulled back to $111.30 area. This was within a sustained down move on the daily and hourly chart and presented a great RR position with a stop at least at the previous high of $111.64. Contracts could have been taken at $0.25 This would be the lowest contract price during this intraday pullback. With the same stop I could have locked in an extra $0.08/contract increasing our gains to 20%. It is what it is…

The exit was perfectly acceptable. It would have been different on the better entry point as once I crossed the $0.50 mark I could have sold have the position for a free trade. This would have given us more flexibility on any rally’s. As it stood however, I just got stopped out. Part of the game. Learn and move on.

The toughest battle is getting in. Within that you have to have courage to stick to your convictions and rules and trust they will protect you. Reluctance to pull the trigger on the entry makes this a bad trade.

Trade Analysis - IWM - 1D Candles - April 14, 2014

Trade Analysis – IWM – 1D Candles – April 14, 2014

Trade Analysis - IWM - 60m Candles - April 14, 2014

Trade Analysis – IWM – 60m Candles – April 14, 2014

Trade Analysis - IWM - 5m Candles - April 14, 2014

Trade Analysis – IWM – 5m Candles – April 14, 2014

Market Analysis – April 16, 2014

The S&P 500 Large Cap Index (SPX), NASDAQ Composite (COMPQ) and Russell 2000 (RUT) made small gains again continuing the bounce versus recent lows. However, today was largely consolidation day (or indecision day) as most indices were well within the ranges set by previous days. This was a boring day for day traders. Nothing has been resolved.

ES Futures are maintaining hourly alignment established midday yesterday though there was a healthy pullback in the early trading session today. We are seeing negativity in the hourly MACD that makes me want to be careful getting too optimistic here. The last time MACD saw these heights we saw a 3.5% drop. This resistance level that currently sits under $1868 will be one to watch so I would suspect at least some consolidation or a retreat on first test.

ES S&P 500 Index Futures, April 14, 2016

ES S&P 500 Index Futures, April 14, 2016

On the daily, however, we remain in a bearish pattern though this is quickly turning bullish. We have taken out the two week downtrend line which bodes positive but only if $1868 caves. At that time we can take a look at a retest of recent highs near $1892.50. First things first.

ES is looking at a bullish turnover on the MACD and it’s looking like we may get this tomorrow. This would bode well for that first test of $1868 but again, expect at least a temporary wall. If ES can close over this level by EOD tomorrow then next week will set up to be a highly interesting week on the bullish side.

ES Index Futures Daily - April 16, 2014

ES Index Futures Daily – April 16, 2014

SPX daily is beginning to show some bullish turnover as well breaking the two week downtrend and seeing some rollover on the MACD. Here the $1872/$1873 level will be the one to watch and, as ES, a close over this will bode well for bulls after the Easter holiday. On the 60m chart (not shown) SPX may see a gap down and fill or positive open and backtrace. Some buying tension will need to be released despite today’s rather narrow trading range. Momentum is waning. Personally, I’d like to see a gap down fill and run to set up that $1872 test. A gap-up will likely sell off quick. $1858 will be key support if this trend is to  turn bullish.

S&P 500 Large Cap Index - April 16, 2014

S&P 500 Large Cap Index – April 16, 2014

COMPQ has taken a beating worse than a red-headed step child and it remains to be seen if we’re done here. But conditions are turning at least somewhat. Look for COMPQ to regain $4100 to gain more momentum. This should break the immediate downtrend and set up a test of the secondary trend near $4200 next week.

The concern is that this trendline break didn’t happen today. COMPQ saw some gains but nothing of strength versus the overall market which I’m cautious to cheer. COMPQ is riding weekly highs which can’t be taken for granted. But $4100 needs to be recovered. The longer the delay there, the more anxious this index should become.

NASDAQ Composite, April 16, 2014

NASDAQ Composite, April 16, 2014

RUT is also slow in gaining bullish momentum as, despite today’s gains, remains slow to break the most immediate downtrend. As with COMPQ, RUT is riding weekly highs and this favors bulls. But key levels must be regained, the first of which is last week’s low between $1130 and $1132. The close at $1131 looks promising. RUT does have room to run before any pullback would be needed. So this does favor some type of bullish open tomorrow morning. If RUT can’t break through $1132 look for a potential retest near $1121 which would fill this last night’s gap. On the upside, $1146 follows $1132 which would clearly shift momentum into the bull’s favor.

Russell 2000 Small Cap Index, April 16, 2014

Russell 2000 Small Cap Index, April 16, 2014

Disclaimer: I am short IWM $113.50/$114 put spread with an expiry of April 17, 2014.