Stocks retreated Wednesday, with most of the losses occurring in the small and mid-caps. The Russell 2000 fell 1.6%, and the Nasdaq dropped 0.7%. The five largest sectors of the S&P 500, which represent over 70% of the index, showed losses. But the iShares Nasdaq Biotechnology (IBB) rose 0.4%.
Bank of America Merrill Lynch pointed out that the Russell 2000 is trading at about 19 times expected earnings compared to 15.3 for the S&P 500. The implication is that this is the reason for the relatively poor performance of the Russell versus the S&P 500.
Producer prices increased 0.6% in April versus an expected 0.2%. And the weekly MBA Mortgage Index rose 3.6%, following last week’s 5.3% increase.
At Wednesday’s close, the Dow Jones Industrial Average fell 101 points to 16,614, the S&P 500 lost 9 points at 1,889, and the Nasdaq was hit for 30 points at 4,101. The NYSE’s total volume was 2.8 billion shares, and the Nasdaq crossed 1.8 billion shares. Decliners outpaced advancers on the Big Board by 1.6-to-1, and by 2.8-to-1 on the Nasdaq.
The complacent CBOE Volatility Index (VIX) indicates that although the S&P 500 is positive, it probably won’t make a huge break from current levels. Look for more of the same inch-by-inch progress.
The iShares Nasdaq Biotechnology ETF shows progress in making a solid bottom after falling 25% from its high on Feb. 25 to its low on April 15. The intermediate resistance line has been penetrated, following a pair of buy signals from my proprietary Collins-Bollinger Reversal (CBR) indicator. MACD is positive and the 20-day moving average is arching up.
The iShares US Technology (IYW) is strong as well. Note that the 20-day moving average is poised to advance through the 50-day moving average — strong buy signal. And MACD is into bullish territory, but volume is flat.
Conclusion: Instead of examining the often-reviewed charts of the major indices, today I wanted to look at the ETFs that represent the two sectors that have caused investors the most concern since mid-February — tech and biotech.
Both show real progress in making a support platform from which they can attack the price structures immediately above. Even though the charts are positive, with strong internal indicators, volume is lacking, and so, like the rest of the market, it will probably take time to break to new highs.
But the future is now and both ETFs are telling us that bargains are available in these sectors. Seek out the oversold values — like our Trade of the Day — and buy now.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.