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If Market Leaders Falter

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One of the first lessons I learned when trying to analyze the direction of markets was that you need to watch current market leadership closely. When that leadership falters, it could be the first sign of either 1) a new rotation in markets, or 2) the beginning of a marked decline.

This year, biotech stocks and the IPO market have been red-hot, but the recent action in each has been less than encouraging for the bulls.

Biotech stocks, as represented by the SPDR S&P Biotech ETF (XBI), were up more than 25% through the first two months of the year. However, over the past month, XBI has plummeted nearly 15%. This marked turnaround is something investors need to watch very carefully, as it could be the canary in the coal mine that snuffs out the bull’s oxygen.

On the IPO front, we now are starting to see distaste out there for high-profile names, the biggest of which was the disastrous trading debut of Candy Crush maker King Digital Entertainment (KING).

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