02Oct11:11 amEST

Catch and No Release

Biotechnology stocks, gauging the IBB and XBI sector ETFs, have been weak for a while now, even before growth stocks and then the major indices began to buckle of late. 

Thus, even as the Dow is off by 400 points here, when we see XBI flipping green this morning after its latest dive lower on unusually heavy sell volume for a week and a half with no respite, it smacks of a "first in, first out" possibility.

"First in," refers to the bios being one of the weaker sectors in the market since July, with bounce attempts stuffed and the sector at-large simply out of favor. So when we see the group flip green here, it may very well signal that sellers are simply exhausted for now, not unlike software names we flagged earlier this week like COUP OKTA (still above their respective Monday lows, by the way). 

And "first out," would essentially mean that the exhausted sellers in IBB and XBI allow those stocks to emerge from correction and begin to slowly heal. Note, for example, just how many individual stocks housed in the XBI are green by 1-3% or more as I write this. NTRA is a name we noted over the summer and, boy, has that stock held up well during this mess. 

Naturally, this is all academic if bulls prove inept at stabilizing the broad market and/or if biotechs reverse lower and crater into the bell. 

However, the software names are largely above their lows from Monday, which makes this biotech reversal something bears ought not shrug off--I have a hard time believing that hedge fund shorts in the biotech space will release their profits on the short side via overplaying their hands down here after such a nice move for them. 

Elsewhere, gold miners are showing solid follow-through from yesterday's upside reversal. Novagold, below on its daily chart, is one of many gold miners which saw a relatively benign pullback in the context of its powerful prior rally. $6.50, then $6.70 are some levels of note to clear above. 

Weekend Overview and Analysi... The Reality of the Situation


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