This column was originally published on RealMoney on Oct. 6 at 1:30 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
I like to look behind the sectors and indices in the limelight for stocks and sectors that are quietly gaining strength and building solid bases.
These are the areas that institutions will look to rotate money into when other sectors become too hot.
They are often washed-out sectors that have been out of favor for some time and are off momentum-investors' screens.
For example, I pointed out the underlying strength developing in technology in
late August, and we have since had some follow-through.
The biotech sector is gaining strength and breaking out of a low-level base that it fell into after breaking down following a strong run last November.
Last week, the
broke up above the 200-day moving average on solid volume for the first time since March.
It pulled back a few days later, but it's now continuing its upward move.
I don't see a lot of resistance until it gets up around the $200 area. (See chart below.)
is the bellwether of the group, and it is leading the charge higher.
It has been building a base over the last five months.
Now that it has consolidated -- the latest move pushing above the 200-day moving average -- it looks like it wants to continue higher.
It doesn't have any major resistance until the $80-$85 area.
Any pullback on low volume could be an opportunity to take a position. (See chart below.)
is still in the base it has been building over the last six months. However, the break above the 200-day moving average last week and the test of it Thursday showed positive institutional support. A break above $85 could lead to a quick run to $90. If the stock can successfully get through there, we could see a test of the December 2005 highs.
also has been building a base over the last couple of months. It has held above its 50- and 200-day moving averages, and it looks ready to break through resistance at $70. If it can get through that level on increasing volume, I don't see any major resistance until $76.
It will be important to watch the biotech sector when the market pulls back from its current overbought condition. If it holds its ground, it could be one of the next market leaders.
At the time of publication, Manning held none of the stocks mentioned, although holdings can change at any time. Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.