The markets

The biotech sector was down the most, 0.73%. All of the other major indexes were flat to down except for the consumer discretionary index, which was up 0.53%, and energy (XLE), which was up 0.45%. It was a pretty slow, flat day in the markets. The largest sectors, technology and financials, were both flat or slightly down. Transports were up strongly, 0.87%. The Nasdaq was down 0.11% – we must keep an eye on that index! The Russell 2000 was down 0.16%, the S&P 500 was up 0.15%, and finally the Industrials were up 0.29%.

Overall, it was a fairly mixed day in the market with limited direction either way.

Biotech moves down to our delight

The biotech sector (IBB) has moved down over the last few days, which has been great for us as we bought put options on XBI. We have made a 72% return in just three days. We will now exit this bearish trade. It had a couple of days of selling off, but IBB has now stopped at the 310 support level. It has worked off the over-bought condition by going slightly down to sideways. This is still fairly strong price action. If the MACD starts to point up from here, I don’t want to be in a bearish trade. I am still watching biotech closely, but right now I am going to exit any bearish positions in this sector and wait for biotech to tell me what it wants to do next.

One trade, which did well in the weak biotech sector, was LOXO. There was ample opportunity there to the downside. Around 11:10am it broke below the opening 30-minute low and proceeded to move down for the rest of the day, getting to a low of $79.66. The 30-minute opening-range low was $81.62 – certainly money to be made there. LOXO was down 3.21% for the day. That gives you an idea of some of the trades we found on Friday.

The Nasdaq on a key support with a gap to fill

I am definitely focussed on the Nasdaq and will be watching it with great interest. It is sitting on a decent support level of 5645. If it breaks that support level it could easily move down to the next significant support level of 5440. That is about a 200 point fall. On the Nasdaq chart, you will notice it has a gap to fill at the 5440 level. If the Nasdaq doesn’t hold its current support level, it could very easily go down and fill that gap. But as I always advise – trade what you see and not what you think! If the Nasdaq does bounce off this support level and move higher, so be it. We go in whatever direction the market moves. The goal of trading is to be in tune with the market. However you need to know specifically what to look for, for example significant support levels. I will be watching this key support level of 5645 to see which direction the Nasdaq next moves in.

The Nasdaq has been bearish recently, which I called. This naturally has a flow on effect to the technology sector (XLK), the largest sector. It, too, is currently sitting on a support level. If it does break this support level, it also has a gap to fill, like the Nasdaq. I will be watching these two extra closely, given they are sitting on support levels and have gaps to fill.

Going forward …

Be aware that the market is only open until 1pm today and will be closed on July 4. There will not be a Daily Update until Thursday. On Wednesday I do the elite trading room with my students.

In terms of the futures market, it is still early days however right now it is quite flat and not telling us a great deal.

So again, focus on the Nasdaq and technology – they are on key support levels with gaps to fill. The S&P 500 is also sitting on a support level and if it breaks this support level it could move down to the next support level around 2400. Note there are two major indexes sitting on key support levels.

Until next time, Happy US Independence Day!