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A Brick Wall for Bulls

The S&P is putting up strong resistance that has withstood several attacks today.
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The European Central Bank concept of a negative interest rate for savers gave the market enough juice to get off the floor this morning, but for the SPDR S&P 500 (SPY), $185.70 has served as a brick wall for bulls. We tested it several times today and failed to get a one-minute bar close over that level.

If bulls can get the bid over $185.70 for even just a few minutes, then I believe we can power higher in a strong fashion. Otherwise, I expect us to close red today. I don't see an in-between. A move under $185.10 only has small support under $185. At that point, I think confidence will be lost again, and yesterday will be seen as nothing more than a dead-cat bounce.

Speaking of dead-cat bounces, biotech may be in that group, or it may be turning a bit. There are a few reasons I am drawn to the following chart, and it comes down to risk/reward. Overall, the price pattern is bearish on Celldex Therapeutics (CLDX), which  is stuck in a nasty selloff.

CLDX

StockCharts.com

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Price is running into resistance here today, so what's to like? Well, momentum actually has a solid bullish divergence for one. The commodity channel index and relative strength index have made higher lows and are pushing above recent resistance in front of price. Furthermore, there is a defined stop. If the stock closes below yesterday's lows or moves under $15.00, then there is no way I want to be long. In fact, a move under $15 sets up $12 as a possible destination.

So, why would that be good? Well, it takes selling $15 puts or even $15-$12.5 put spread sales off the table. The risk/return is awful. In fact, the downside is probably the most likely resolution, but a bounce would likely be another $3-plus to the upside, so a move higher should be larger than where the stop is set lower. I do want to see how the early afternoon plays out here before looking at the stock, and I am looking at the stock because the spread in the options is too wide, but if we stay over $16.75, it looks worth the shot to the upside.

At the time of publication, Collins had no positions in stocks mentioned.