Oversold bounce may continue

The market is having an oversold bounce which is being led by the Semiconductors. Most of the other indexes seem to be coming along for the ride. Nothing has changed in the internals for us to alter our view that this is a rally without legs. However, the momentum juices can likely get flowing if we take out near-term overhead levels. A close at or around 2150 on the NASDAQ might be enough to create some follow through to 2170. This is a little higher than we were discussing in our earlier post today.

After carefully analyzing the action in the NASDAQ this morning we noticed a gap between 2150 and 2170. Gaps usually need to be filled irregardless of the prevailing trend. The oversold condition of this market combined with a close at or around 2150 may be all that is needed for a little momentum to kick in. However, unless the internals show improved character, a rally to 2170 would still not impress us in altering the established downtrend. We would look to scale out of some of our long positions into that kind of strength.

We have done some bargain hunting on specific stocks that we like who have recently been hit hard. Google (symbol: GOOG) still has a hangover from its secondary offering and Baidu (symbol: BIDU) is down over 50% from its high. We have slightly increased our exposure to these two names. We have also initiated a very small position in Merrill Lynch Biotech Holder (symbol: BBH). We believe that should the NASDAQ begin to rally to 2170, traders would be searching for beta away from technology. Panacos Pharma (symbol: PANC) may have reminded traders that Biotech is usually a good alternative to the traditional technology stocks when in search of beta.

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