Don't Roll the Dice on Central Bank News

 | Aug 04, 2016 | 10:53 AM EDT
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Stock quotes in this article:

ebio

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exel

,

petx

,

nktr

,

optt

,

goro

,

nsm

,

adxs

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erii

For the bears, one of the most obvious trades in this market, for a long time now, has been to fade central bank action. Typically, the news is well anticipated, so it seems logical to "sell the news." While it may sound like a trade with good odds of working, it has not been very successful in this market. The market has repeatedly continued to run up following central bank news, and any dips are bought quickly.

The bears are giving it another try, this morning, following the Bank of England announcement of a rate cute and large quantitative easing package. We had a small gap higher following the news, but the strength is being sold and the market is now slightly red. It isn't particularly aggressive selling so far. Breadth is still positive, and there isn't any major rush for the exits, but you can't blame the bears for trying.

We still have trading-range action, so if you want to make a buck, you need to focus on some good stock picking. The main thing I see on my radar right now is small-cap biotechnology names. I've recently mentioned some names, like Eleven Biotherapeutics  (EBIO) , Exelixis (EXEL) , Aratana Therapeutics (PETX) and Nektar Therapeutics  (NKTR) . That is where the aggressive traders are focused.

Other small-cap names on the "heater" scan include: Ocean Power Technologies (OPTT) , Gold Resource Corp (GORO) , Nationstar Mortgage Holdings (NSM) , Advaxis (ADXS) and Energy Recovery (ERII) .

I'm also keeping an eye on the precious metal names, again. They are seeing some support and are forming some good patterns.

I would not be at all surprised to see the early bears squeezed as the day progresses. Selling on central bank news just doesn't tend to work very well.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider EBIO and OPTT to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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