Biotech, Blue-Chip Tech Buckle as Nasdaq Cedes 5K

Stocks moved lower Tuesday in another quiet session as the buyers just didn’t have the resolve to press their advantage.

In the end, the Dow Jones Industrial Average lost 0.5%, the S&P 500 lost 0.5%, the Nasdaq Composite lost 0.6% as it fell below the 5,000 level, and the Russell 2000 lost 0.6%.

Biotech and big tech were under pressure, with Microsoft Corporation (NASDAQ:MSFT) losing 1.4%. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) fell 0.5% after being down as much as 1.7% earlier in the session. Chipmakers were hit after Micron Technology, Inc. (NASDAQ:MU) was downgraded to “neutral” at Nomura, pushing down the broad Philadelphia Semiconductor Index by nearly 2%.

Crude oil inched higher to close back over the $50 a barrel level. Traders were busy digesting talk that a US/Iran nuclear deal could end sanctions and increase Iranian crude exports — which would add to the global oversupply situation. But there was also chatter that crude oil inventory gains could start slowing, something that was given credence by a smaller-than-expected API petroleum inventory build of 2.9 million barrels.

Auto sales were weak, suffering their worst start to a year since 2010 as the seasonally adjusted annualized rate falls to a 10-month low. The three-month change in the annualized rate has dropped to -6.6% — a depth not seen since 2011. Ford Motor Company (NYSE:F) reported sales down 2% year-over-year on expectations for a 3% to 5% gain. Executives said there was a pronounced slowdown in the second half of February ostensibly due to the East Coast blizzards.

General Motors Company (NYSE:GM) wasn’t impacted, suggesting that maybe it’s a problem with Ford’s product mix.

Technically, when broadly measured by the NYSE Composite Index stocks continue to contend with overhead resistance from the trading range going back to July. And we continue to see stocks diverge from the rollover in both earnings expectations and economic surprises.


Given extreme bullishness among “dumb-money” traders– which on some measures has hit levels not seen since 2004 according to data from SentimenTrader — amid apprehension by “smart” money traders, I remain cautious.

In response, I have recommended the iPathS&P 500 VIX Short-Term Futures Index TR ETN (NYSEARCA:VXX) March $28 calls to my Edge Pro subscribers — a position that they traded back in December for a 15-day gain of 518% as, like now, volatility got extremely cheap.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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