Weekend Note- 6/20/2022
Can Biotech Manufacture Some Leadership?
Summary and Key Focus List
Full chart deck can be found here on the website bullishgrowthstocks.com
Indexes are sloppy and in downtrends. Extended on downside and far away from 50 day moving averages, could play for a bounce depending on how they open on Tuesday.
Very few, if any, core setups worth noting. Shorts are working and we will continue to trim and trail. Will be a week with some deeper research into possible leadership names and plenty of patience.
News driven market with inflation, rates, QT, FED statements, and war news taking center stage.
Possible leadership in Biotech with KWEB IGV and ARKK on focus watch as they did not make fresh lows last week as indexes did.
Focus List- UTHR RCMT SIGA VRTX HALO LEGN VIVO KWEB IGV ARKK XBI
UTHR on back test of breakout pivot
RCMT on possible continuation pivot forming
SIGA on possible continuation pivot forming
Looking to get positioned in VRTX HALO LEGN if they continue to build out right side of bases an tighten up, allowing for low risk entry.
Review of Previous Week Note & Trades
Overall, it was a positive week as the ideas we have been talking about are working.
New Open Trades
WOOD triggered short on Friday of last week but we missed it. We took the short position on Monday through put options and put debit spreads. Currently around +1R on position and will start peeling some off early next week. I think ultimately price can work its way down to 70 or so and I will leave partials on for that.
ARKK short triggered last week and we got a total of +1.5R and trade. We used SARK for the trading instrument, and entered on 6/9 at average price of 41.45 with R1= 1% of account value. We took 1/3 off the next day at 65.38 and the rest of on 6/15 at 68.90.
Rest of Report
Bitcoin had a beautiful breakdown, which we unfortunately did not play (missed it). This would have been a great trade as it gets close to breaking 18K. Its proving to be a speculative trade based on liquidity and narratives much more then a store of value or inflation hedge.
Indexes remain in downtrends like we have been talking about. We had no real focus on the long side coming into this week (besides commodities) and after seeing the action, I think you can see why. We are pleased with our trades and ideas which added positive gains to our accounts while side stepping the destruction on the downside.
Sometimes, it really is that simple.
Note on R-Multiples.
I am always thinking in multiples of my risk. If you google R-Multiples, you will find a treasure trove of valuable information that will only help your trading. My risk is a % of my account I am willing to lose to see the idea through- ranging from .5%-2% depending on the idea, market conditions and previous trades. That number becomes my R for the idea. I then position size the risk depending on the R and my stop on the trade. I usually take partial profits at R1 (one time my risk) and move my stop to break even and see the trade through, taking more partials using the moving averages as my guide.
As usual, here is Ed Carson from Investors Business Daily to recap last week’s action and provide some insight.
“The stock market had big weekly losses once again, with the major indexes tumbling to their worst levels in more than a year. The Dow Jones Industrial Average sank 4.8% in last week's stock market trading. The S&P 500 index tumbled 5.8%. The Nasdaq composite retreated 4.8%. The small-cap Russell 2000 plunged 7.5%. The 10-year Treasury yield rose 8 basis points to 3.24%. On Tuesday, the 10-year yield shot up to 3.48%, an 11-year high. U.S. crude oil futures plunged more than 9% to $109.56 a barrel last week, snapping a seven-week losing streak. Gasoline futures also fell sharply. Natural gas prices tumbled.”
All in all, not a great week for longs. What should you do now? He adds:
Investors have no reason to be invested, with even energy stocks flashing sell signals. The only possible exception would be modest exposure in long-term winners. Still, it's important to stay engaged, watching the market action and preparing for the next uptrend. It's time to get your pencils, not your pens, for updating your watchlists. Look for stocks with strong relative strength, especially if they are holding key support levels. But a lot of stocks with strong RS lines will have ugly charts right now. With the major indexes plunging toward their pre-Covid peaks, investors should be on the sidelines. Don't get excited by one-day rebounds, such as Friday's tech-led advance. Instead, prepare to take advantage of the next sustained uptrend.
I think he hit the nail on the head. Stay engaged and be ready.
The four major indexes are about as sloppy and unattractive as they can be and are in well defined downtrends. They are extended on the downside and pretty far away from the 50 day moving averages. I would guess some form of rally early in the week would make sense. It might be possible to use the low made last week as a tradeable bottom to play a bounce from. That being said, we are still in no mans land where edges are few, setups are sparse and trends are down on all timeframes.
Historically speaking, leading groups and stocks have often bottomed before the general markets. One huge tell they like to offer up is by making a stand and putting in a higher low when everything else seems to be moving lower. I have no idea if this is the low, or anywhere near it, but four groups did stand out last week.
XBI IGV KWEB ARKK all made higher lows while the market took out support. Bio-tech might be setup the best, but is my least favorite to trade. Software has been hit hard, and could be seeing some early buyers into beaten down growth names. ARKK has made headlines as Cathy Wood’s fund continues to slide, but again, making a higher low might indicate the majority of the damage is done. KWEB is already moving off the bottom as China is now being deemed “un-investable” by pundits on T.V (HINT- that usually means its a good time to buy)
(I can only include so many charts on substack, click here to go to my website (bullishgrowthstocks.com) and download the full chart deck with all the MarketSmith charts and markups for all key stocks)
Biotech might be my least favorite group to trade, but its starting to make the case for possible leadership. Many stocks have strong institutional support and good fundamentals. VRTX HALO and LEGN are building out the right side of their bases while UTHR SIGA RGC have already broken out and might offer continuation plays. I will be spending more time on this group, but don’t be afraid to play the broad based biotech etf’s as well.
Another week where less will probably be more. I will post some research reports on key biotech names while looking to see if these four groups continue to hold up. As of now, there are no core setups to even talk about. It is way to early to be talking about leadership, but we can be thinking about it and starting to do our homework.
I hope this helps knock some ideas loose in your head.
As always, thank you for reading. I hope you found it helpful.
See you tomorrow for the open.