After a two-week reprieve, the bears were on the attack again Wednesday. Stocks are contending with some serious overhead technical resistance. The Dow Jones Industrial Average has moved into a resistance zone going back to December, spanning the range between 16,600 and 16,500. For its part, the tech-heavy Nasdaq Composite has hit downtrend channel resistance around the 4150 level.
The situation looked vulnerable after the low-volume, narrow-breadth rebound out of the lows set earlier this month. The evidence suggested that much of the motivation for the rebound was short covering activity in the big tech and biotech stocks that have been such a drag on overall activity since March.
Just look at the moves in the iShares Biotech ETF (IBB). It tells the tale of the tape. After peaking at $275 in February, the IBB dropped 25% into its intraday trough before reversing and finishing in the green on April 15. Shares rebounded nearly 14% into highs set on Tuesday. But now, the IBB looks like it’s going to finish the day today with a “bearish engulfing” candlestick pattern that suggests more downside is yet to come.
In response, here is a list of four short-side (or put option) candidates to profit from the return of the selling pressure — along with one long-side (or call option) candidate that’s breaking to the upside.