Sector Strength in Materials, Weakness in Biotech

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw a widespread, but mostly muted rally, led by the Internet HOLDRS Trust (HHH). This week we find a skew to the downside with biotech hardest hit:

click to enlarge

Nearly two-thirds of my list showed a loss on the week with the Biotech HOLDRS (BBH) and iShares Nasdaq Biotech Fund (IBB) the weakest.

Both the BBH and IBB were hurt this week by a plunge in Amgen (AMGN). Downgrades, following concerns about anemia drugs, pushed Amgen to a new annual low. The stock accounts for nearly 20 percent of the BBH weighting, while IBB counts AMGN as its most heavily weighted position near 12 percent.

Also weak were ETFs related to precious metals, clean energy, and housing. A look to the upper half of the graph shows that select technology related funds, oil services and materials were strong. The Telecom HOLDRS (TTH), a group we discussed last week, wasn't the strongest ETF, but it did manage to buck the overall malaise and continue the constructive price action I noted. The iShares DJ U.S. Basic Materials (IYM) tops the list as the fund sits near its all-time high.

Index performance this week:

Index performance YTD:

Charts: Google Finance

Comments

[MichaelBommarito]

Hey Nick, I'm not sure whether we're using different "weeks" to do these numbers, but I've recently generated a summary of the last week for ETFs/CEFs that doesn't agree with your rankings. For instance, I know the other China funds performed in my top ten list (GXC,FXI), and HealthShares Emerging Cancer Fund and Europe HOLDRs (HHJ, EKH) got shaken badly. That aside though, my conclusions are pretty much the same, although you can see on my link above that European and Healthcare ETFs performed just about as poorly as Biotech.

[Longviewer]

Biotech weakness has to do with DNDN Dendreon Corporation's free fall. That sort of thing causes jittery investors in other firms to follow the herd at times. It isn't necessarily rational.

[jturano7423]

I tend to agree with Mike 7 Woodson, but I like to add that some investors are obsessed with certain biotech's and no matter the news,trends, or reality of approvals, they keep buying with both fists. No matter if their stock has gone down 50% in a course of a year.
Two examples are "nstk" and "gnbt". Even the message board of either company reflect the insanity of the shareholders. Whatever serious data published about either company, the shareholders pay no mind to it even if it's against the company.
I call it intoxication of the Stock!
JIMMY T>.