14Nov10:38 amEST

Divorce Italian Style

B1deJwpIcAAL8vg Although it is not particularly popular to speak up nowadays of the potential for a "bull trap, or false breakout which leads to a sharp correction, in equites these days, thanks largely to the QE V-shaped market, I am still going to do it. Simply put, the higher up we go on a multi-year basis with leading issues such as major biotechnology player Gilead, the more likely we are to see that bonafide bull trap--Think of it as stretching out a rubber band, as it can only go so far before being snapped. And when it breaks, it tends to break hard. This type of abrupt change in character reminds me of the great movie Divorce Italian Style (1961), in terms of how heightened emotions can be on the part of market players at (potential) inflection points, on top of the wild price swings in the market. Put another way, you had better be ready for a crime of passion, Italian-style divorce from the typical moves we have seen since 2013 when this market changes character. With this in mind, recall how steep the monthly chart angles of ascent are on many of these biotech leaders, thus making the bull trap issue increasingly relevant. In the case of Gilead, the zoomed-out daily chart shows an initial fade above the $110 breakout level (horizontal light blue line), bringing the stock back down to $100 support. Headed into next week, if we see some basing or weak bounces along that 100-day moving average (lightish line), I view the biotech leader as a short sale setup. Incidentally, biotechs as a whole are lagging the tape this morning, another reason to not get too excited about longs into the weekend if that action persists throughout the session. ________________________________________________ GILD

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