The biotech sector was the talk of the town on Friday. The biotech ETF, IBB, was down almost 5%, and biotech shares led the Nasdaq and the healthcare sector lower. The Big Four, AMGN, GILD, CELG, and BIIB, were all down more than 3% (BIIB went from near its all-time high to below its 50 day ma, down 8% on the day).
Weakness on Friday was not exclusive to biotechs. We identified biotech, social media, and solar as 3 sector leaders in 2013 in a CotD post in early February:
Over the last year, there have been a few sectors which have been blazing, with many stocks in those sectors doubling or tripling in that time. While the S&P 500 is down about 5% from its December 31st close, some of those sectors have been quite resilient nonetheless.
TAN, the solar ETF, was also down more than 4% on Friday, while SOCL, the social media ETF, was only down a touch. However, in a week in which the S&P 500 was higher by nearly 1.5%, all three sectors were flat to down, with the biotech stocks the weakest of the bunch.
Josh Brown who writes The Reformed Broker blog had a thorough post yesterday discussing whether biotech was in a bubble. Here was one of the better pieces of evidence in favor of the bubble argument:
This year so far, there have been roughly 50 initial public offerings and half of those have been early-stage biotech companies. The average gain for these new biotech offerings through the middle of March is over 50%. Anyone with a protein compound under a microscope and a clean suit can go public right now. You actually might not even need the compound, just the idea for one.
Speculative fervor has spread far and wide in the U.S. market, though timing a bubble’s end is notoriously difficult.
For many months now, momentum traders have harped on the fact that leadership stocks and sectors have held up well even when the broader market indices have corrected. Over the past few weeks, many of those same traders are voicing caution as leadership has begun to underperform.
The Nasdaq’s underperformance has reflected that price action. It’s too early to read too much into that weakness, but my hunch is that the Nasdaq’s reaction to its 50 day ma in the coming week should offer more evidence of whether the mini-selloff on Friday is the start of something more substantial.