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Buying Greater Strength

11/28/01 09:35:05 AM
by Austin Passamonte

When looking at technology, there are several sectors to watch. Here is a look at the Biotechnology and Semiconductor sectors.

Security:   SOX, BTK
Position:   N/A

We recently determined that tech sectors exhibited more technical strength on a comparative basis than the "old economy" indexes did. For those who turn their attention back to techs, where might one look to anticipate new entry points at this stage of the game?

The Semiconductor Sector Index [SOX] has just begun another bullish reversal movement in its stochastic values at the time of this writing (11/27/2001). Meanwhile, action remains pinned below the ascending channel's mid-line of "fair value" where the rally tended to magnetize opening & closing prices as it rose.

Figure 1: Daily Chart: SOX Index
Graphic provided by:
Graphic provided by: Qcharts.
We can see where two previous pullbacks to the lower channel line (red) offered high-odds entry and the third may have done so as well. We might try long entries on a break above the mid-line resistance or another bounce from red line support with stops placed just below either to protect. If the trend is for real, these points should offer the next viable upside entries ahead. One eye must be kept on overhead resistance as possible points of failure, but better to enter bullish plays near support with room to run in deliberate trends that fail to break out such as we've seen here since late September.

Traders may opt to play the strongest stocks or their options in this index, or consider the SMH HOLDRs and their underlying options as listed on the AMEX ( to track the semiconductor index closely.

Figure 2: Daily Chart: BTK Index

Biotechs seem a bit more advanced in their current move than semis do on a relative basis between the two. Stochastic values are still bullish but are hovering near overbought extreme while the SOX just emerged from oversold areas, with more upside potential before reaching overbought in that sector.

The Biotechnology Index [BTK] trades well above its 200 day moving average and attempts to break out in bullish fashion to the upside of an ascending wedge, but the better entries in this sector came near the 475 and 536 areas. It could be time for a breather here before the next pullback offers a high-odds setup equal to that which the SOX may exhibit instead.

Unlimited capital to work with allows an investor or trader to play both. Limited capital to risk mandates a trader to drill down a bit more and compare potential markets for the slight edge in entry points at any given time. They won't always be right, but the extra effort should result in better than 50% success in catching the greater move with less inherent risk of capital loss.

Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Address: PO Box 633
Naples, NY 14512
E-mail address:

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Date: 11/28/01Rank: 5Comment: 
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