10/14 …Update 3:10p Here come the sellers late in the day on schedule. Investors are trying to hold the fort.

Oil down, treasuries up, JPMorgan misses off 0.43%.

XLE off 0.57%, Gold steady at 1233, biotechs mixed but GILD down 5%, industrials and technology in the green.

Germany slashes growth forecast.

FINVIZ.com – Stock Screener


Sentiment Shift Favors Gloom and Doomers

Support Levels Are Broken-S&P 1900

NASDAQ at 4214 up 0.9% YTD        S&P at 1875 up 1.43% YTD

We have heard a constellation of reasons for the recent market sell-off:

  • A weak economy projected for Europe
  • Deflation concerns, commodities weak
  • End of QE by FED and possible rate increases  in 2015
  • Profit taking that began in September
  • Sell-off in crude and an earnings miss in semiconductors (MCHP)
  • Bad news like Ukraine and now Ebola

Ultimately the market should be dependent on the state of the economy which is improving and corporate profits which will be reported in the coming weeks. However good job data and a reduction in the deficit have not supported equities. This bull market has been more dependent on the FED fueling momentum trading by and institutions and large cap stock buy-backs thereby refunding balance sheets while boosting earnings.Top line growth has been hard to find and global growth is slowing. The recent volatility defies analysis so we must rely on technicals to guide us through a very turbulent period.

But why does the market lose altitude late before the close?

Recent Performance of Biotech Stocks-Surveying the Damage

The biotech sector had recovered from April lows and briefly touched February “bubble” highs. However small cap biotech stocks have not resumed the Q1 momentum and are languishing near lows YTD. Large cap biopharmaceuticals rallied in Q2 and brought us out of the doldrums. Life science stocks are still beating the market but have recently joined the sell-off.

Here are the numbers:

Rayno Life Science-Large Cap Portfolio: Down 5% in one month, up 18.5% YTD

Rayno Mid Cap Portfolio: Down 8.4% in one month, up 1.5% YTD.

ETF Watch: FBT down 4.7% over past 5 days up 26.4% YTD, IBB down 6.6% over past 5 days up 13.24% YTD, XBI down 6% over past 5 days up 11.7% YTD.

XBI is the most volatile and FBT the most stable and leader.

Chart forFirst Trust NYSE Arca Biotech ETF (FBT)

It will be interesting to see if life science mutual funds such as Fidelity Select Biotech Fund (FBIOX) can beat ETFs in Q4.

Macro Review

Flight to Safety has boosted the 10 Year Treasury bond driving the yield down to 2.28% . Most forecasts show TSY yields up to 2.8% level in 2015 or sooner.

Uncertainty has boosted gold to $1237 off one year lows under 1200 in early October. Gold is well below Q1 highs near 1400.

Look at Pomboy Model for clues as to what is ahead in a treacherous market.


Raise cash above 15-20% levels previously mentioned.

Hold large cap life science stocks; no new buys in small cap stocks.

Caution rules.


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