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Today’s market reached epic proportions of volatility and extremes exacerbated by a DOW opening “flash crash” off 1100 points that distorted faith in market mechanics. Several long time market experts opined that the distortions and panic today were caused by “robots and algorithms” that could not handle the volatility. Through much of July and 2015 biotech stocks behaved as momentum plays with specialty funds driving ETFs and hot stocks to new highs. Momentum stocks broke down around August 5 with many high fliers selling off from July highs. Global growth concerns triggered by China began to hit the market and biotechs sold off with NASDAQ technology stocks. The largest biotech ETF the IBB is still seeking a bottom down 12.3% over five days and 4.13% today at $325.8 up only 7.37% YTD near February lows.
The smaller cap, momentum driven XBI is still up 10.3% YTD at 205.65 after hitting highs in mid-July of $273. Even the staid healthcare XLV was down 4%. Among our large cap picks the Roche ADR (RHHBY) was down only 0.6%. Four out of five of our market trends are negative.
Here are some of the key points from previous posts:
- Valuations now do matter and $3B+market caps will be scrutinized.
- Rampant speculation in small caps may be curbed.
- Bull Market is intact in Life Science stocks.
- Healthcare and biotech stocks will no longer be immune to macro events.
- Technicals will lead the way up with ETFs and large caps rallying.
- Expect a fourth quarter rally unless Q3 earnings disappoint.
Assuming you have ample cash and hedges,there is little need to trade stocks or re-balance portfolios as the day-to-day volatility is too great. Confidence on the part of retail investors can be further shaken by the market turmoil because there is no explanation for these wild moves.It could take another month for important technical levels to stabilize as tracked by NASDAQ and the IBB. At this point the market is beyond analysis and we can hope that the enormous profits made in biotech particularly by large specialist institutions over the past five years will bring investors back.