Many times, I scan for smaller cap opportunities. And one of the keys to trading them is to keep an eye on the bigger names in the space.

Lately some biotech stocks looked pretty constructive on daily charts. MYL is the exception, as Congressional pressure regarding their EpiPen has pressured the stock. This seemed to be confined to only MYL. Many leaders in the Biotech space, such BIIB, AGN, and AMGN had stayed higher.

That changed about 1 PM yesterday. Stocks like BIIB, which had been higher earlier, reversed sharply. BIIB had been up more than 3 points and then was down more than 12 points at it's lowest. It is imperative to always watch the "biggies" when trading the smaller stocks in the group. Here is a chart of a good looking Biotech - OVAS - yesterday morning.

$OVAS 8/24

As I had mentioned on Simpler Stocks earlier in the day, there were 2 ways to play this stock. One was to wait for the breakout above 6.60. The other was to buy around 6.15, with a tight stop around 6.05. That 6.05 level corresponded with the 49 EMA on a daily chart, and the green lower trendline on a 78 minute chart. I bought 400 shares at 6.15.

The key is to watch the action of the big Biotech's while in the trade. When BIIB reversed, it was obvious that I was going to get stopped out of my OVAS trade at 6.05. I lost 40 dollars on the trade.

The chart shows the nasty reversal in BIIB.

$BIIB Reversal

The beauty of the stop was what happened AFTERWARDS in OVAS.

$OVAS Post Reversal

If I had stubbornly held on I would have lost 10 percent! I could have used a mental stop, but I was not at my screens all day, so I put in a hard stop. If I was trading all day, the SECOND I saw BIIB reverse to down for the day I would have exited OVAS immediately. OVAS was still up for the day when BIIB reversed. Following the leader could have helped save some money!