Biotech Stocks Drag the S&P Lower and the VIX Up

S&P 500 futures have closed lower 4 out of the last 5 sessions or down 3 in a row

The CME Groups S&P 500 e-mini futures (ESH15:CME) made an early high of 2089, and then resumed its current course: downward. As the big mutual and investment funds start their end-of-the-quarter adjustments, the big funds are not only selling the losers but taking profits on some of the winners too. What usually happens is, the funds sell at the end of the quarter and then put the money right back to work on the first few days of the new month or new quarter.

You could tell by the price action of the S&P yesterday that something big was weighing on the index markets. It started out with the weakness in Europe and it ended up in the biotechs, which were up 2.74% going into yesterday’s trade. All day long the Dow, S&P and Nasdaq futures were weighed down by all the selling in the biotech sector. Every time the S&P rallied it got hit by another larger futures sell imbalance. Right after the MrTopStep imbalance meter went from sell $300 million to sell $400mil, and ended up showing sell $737mil, the (ESM15:CME), (YMM15:CBT) and the (NQM15:CME) all started working down to new lows of the day. In the S&P futures it was one index arbitrage sell program after another and hitting ESM15 sell stops all the way down to the lows of the day at 2052.25. The Russell 2000 futures closed under its 20-day moving average or down -2.4 on the day.

At the end of the day stocks closed sharply lower across the board. The Dow Jones futures closed 300 points or down -1.6% at 17649.00. The S&P futures closed down 31.1 handles lower at 2053.80, down nearly -1.5%. And the tech-heavy Nasdaq futures (NQM15:CME) fell a whopping 105.50 points down to 4323.50, down -2.4%, its largest one-day drop since April of 2014. The main weakness came from steep declines in the biotechnology and semiconductor stocks, which closed sharply lower. While investors were buying up energy stocks, crude oil futures settled at $49.21 a barrel, up 3.6% on the day, with energy stocks in the S&P the only sector showing gains, closing up 1.2%, while gold closed up 0.50%. The last few days have been rough and the markets look bad, but we don’t think it will stay that way.

In closing, I want to ask, can you say “biotech bubble? I personally have not heard the term used this much since 1999-2000. Are the markets going to crash? We don’t think so…

“Biotech Stocks Drag the S&P Lower and the VIX Up”

In Asia 6 out of 11 markets closed higher and at 6:00 CT in Europe 9 of 12 markets are trading modestly lower this morning. Today’s economic calendar: St. Louis Fed President James Bullard speech on the economy and monetary policy, in Frankfurt, Germany, jobless claims, Atlanta Fed President President Dennis Lockhart to discuss monetary policy and economic outlook, in Detroit, PMI Services Flash, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 7 Yr-Note Auction, Money Supply and the Fed Balance Sheet.

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Our View: The S&P is trying to balance a lot of variables right now. It was a very shaky close. Weakness in Europe, liquidation in the biotechs, and the 1Q S&P rebalance at the end of the month, all weighing down on the indices right now. Does that mean we are still going lower? Well, the ESM15 closed below its 50-day moving average, and overnight in Globex retested the March swing low at 2039.00. A close below that level points to the 2000.00 to 1985 support area.

As of today there are 4 full trading days left in March and the end of the first quarter. That’s a lot of time. Based on how weak the futures closed, we think it’s possible we see lower prices, but we also are keeping track of the up and down days, and with the ESM15 down 5 out of the last 7 sessions or down 3 in a row we cannot rule out some type of rally/ bounce.

AAII Sentiment Survey: Bullish: 38.4%, +11.3 pts; Neutral: 37.2%, -4.2; Bearish: 24.4%, -7.1 aaii.com/sentimentsurvey

As always, please use protective buy and sell stops when trading futures and options.

• In Asia 9 out of 11 markets closed lower: Shanghai Comp +0.58%, Hang Seng -0.13%, Nikkei -1.39%
• In Europe 12 of 12 markets are trading lower: DAX -1.57%, FTSE -1.23%, MICEX -0.90%, Athens GD.AT -2.61% (at 6:45 CT)
• Fair value: S&P -8.14 , Nasdaq -8.47 , Dow -87.46
• Total volume: 1.77mil ESM and 15k SPH traded
• Economic schedule: James Bullard speaks, Jobless Claims, Dennis Lockhart speaks, PMI Services Flash, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 7 Yr-Note Auction, Money Supply and the Fed Balance Sheet.

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