GILEAD AND BIOGEN LEAD BIOTECH SELLOFF WHICH PULLS NASDAQ LOWER -- MARKET SUFFERS DOWNSIDE REVERSAL DAY ON FRIDAY -- BIG JUMP IN 2-YEAR YIELD MAY HAVE ALSO UNSETTLED MARKET -- DOLLAR BOUNCE MAY CAP GOLD RALLY
BIOTECHS TUMBLE ON FRIDAY... Biotech stocks, which have been market leaders for months, took a big hit on Friday. The catalyst for the heavy selling was a letter by a group of House Democrats asking Gilead Sciences to justify the high price of its hepatitis drug. That query caused the stock to tumble along with a number of other biotechs that also produce high-cost drugs. Chart 1 shows Gilead Sciences (GILD) tumbling 5% on Friday in extremely heavy trading to the lowest level this year. It should be noted that the stock peaked in late February and has been falling throughout March. Chart 2 shows Biogen Idec (BIIB) falling 8% on Friday. The stock ended below its 50-day average in very heavy trading. Other biotechs that suffered big losses were Alexion Pharmaceuticals (-8%) and Vertex Pharmaceuticals (-5%).
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
BIOTECH PLUNGE HURTS NASDAQ MARKET... Since most of biotech stocks are traded on the Nasdaq market, Friday's plunge hit that index especially hard. Chart 3 shows the Market Vectors Biotech ETF (BBH) tumbling below its 50-day line at week's end in extremely heavy trading. The solid line above the chart plots a ratio of the BBH divided by the Nasdaq 100. The biotech group had been leading the QQQ higher for most of the past year. The falling RS line shows biotech stocks starting to weigh on the Nasdaq 100 which was Friday's biggest loser. Chart 4 shows the PowerShares QQQ Trust suffering a downside reversal day in extremely heavy trading. The solid line above the chart plots a ratio of the QQQ divided by the S&P 500. The QQQ had been leading the S&P 500 higher for the last six months. Its RS line, however, has been dropping since February. That may be a short-term caution sign for it and the rest of the market. The fact that daily MACD lines (below chart) are still negative also raises the possibility that the QQQ rally has stalled below its early March high. [Friday was a quadruple witching day which usually results in higher volume. Even with that caveat, Friday's heavy selling in the market may be some cause for concern].
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
MARKET INDEXES SUFFER DOWNSIDE REVERSAL DAY ... Chart 5 shows the S&P 500 also suffering a high-volume downside reversal on Friday. That happened as the SPX was testing its early March high and kept that index in a short-term trading range (see box). The two key levels to watch are overhead resistance at 1883 and underlying support at 1839. It would take a close below its March low to signal that Friday's selling was turning into a more serious setback. Note that daily MACD lines (below chart) are still negative (as are weekly MACD line which were shown last Saturday). Chart 6 shows the Dow Industrials also turning down at week's end. The Dow still remains below its January high (with negative MACD lines). The Dow would also have to close below its March low (16046) to signal more serious selling.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
JUMP IN SHORT-TERM RATE RAISES CONCERNS... Long-term bond yields bounced on Wednesday (and bond prices dropped). Chart 7, however, shows the 10-Year T-Note Yield (TNX) still contained between its March highs and lows. This week's rebound did, however, push the TNX back above its (red) 200-day moving average line. [The bond yield dipped (and bond prices rose) on Friday as stocks sold off]. The biggest concern this week, however, was in shorter-term rates. The line on top of Chart 7 shows the 2-Year Treasury Yield ($UST2Y) jumping sharply to the highest level in six months. That was due to Janet Yellen's Wednesday statement that the Fed might start raising short-term rates by next spring, which is sooner that most were expecting. That may have also contributed to some late-week profit-taking in stocks. The jump in rates helped boost the dollar.
(click to view a live version of this chart)
Chart 7
DOLLAR BOUNCE CAPS GOLD... This week's jump in U.S. rates gave a boost to the U.S. Dollar.. The weekly bars in Chart 8 show the U.S. Dollar Index (USD) bouncing off chart support along its 2012/2013 lows. That's an important support level. The dollar rebound helped push gold prices lower (as did the rebound in stock prices). Chart 8 shows that the dollar and gold trending in opposite directions. Dollar weakness since the second half of last year helped support a gold rally. If this week's bounce in the dollar holds, that might cap the gold rally. Higher short-term rates are also bad for gold.
(click to view a live version of this chart)
Chart 8
EFA AND EEM STILL BELOW MOVING AVERAGE LINES... Some easing of tensions in the Ukraine provided relief to global stocks earlier in the week. Chart 9, however, shows EAFE iShares (EFA) ending the week below its (blue) 50-day moving average. Two of the biggest drags on the EFA were Germany and Japan. As suggested last week, Germany's economy is being threatened by its close trading ties to Russia, while Japan is being hurt by economic problems in China. A bounce in China (and an early bounce in Russia) boosted emerging markets this week. Chart 10, however, shows Emerging Markets iShares (EEM) still trading below their (red) 200-day average and initial chart resistance at its early March high. [Russia slid later in the week]. The EEM would have to clear both chart barriers to improve its chart picture. The inability of foreign indexes to recover from their early March selloff would suggest that global tensions are still a threat to the U.S. market.
(click to view a live version of this chart)
Chart 9
