First it was tech, then it was housing. Where’s the next bubble going to come from?
Looking at a chart of the Biotech iShares ETF (IBB), we see that is up over 500% since the March 2009 bottom and has been one of the best performing sectors in the S&P 500 over that time.
Whether or not biotech is the next bubble, it is clear that IBB is trading very high relative to its long-term 200-day moving average (blue line) and might be due for a pullback. So warns Jonathan Krinsky, Chief Market Technician at MKM Partners, in a recent podcast with Financial Sense Newshour:
“One of the things that concerns us here when looking at the biotech ETF, is that it’s about 35% above its 200-day moving average, which is kind of its long-term reference point. That is the widest spread in the 200-day in the history of the ETF going back to 2007. The last time it was at such a wide spread was about a year ago. If you remember, the March/April timeframe was pretty ugly for biotech.”
Secular Shift in the U.S. Dollar
While citing commodities, gold, and interest rates as three areas yet to break free from long-term downtrends, Krinsky says the same cannot be said of the U.S. dollar, even though it is pulling back some due to today’s comments from the Fed.
“The U.S. dollar [has] really been in a secular downtrend for twenty-five or thirty years and it’s just now in the past couple of months started to break that long-term downtrend line. So from our perspective that’s a secular shift or secular change that is likely to continue despite the fact that it’s very extended, despite the fact that sentiment is very bullish on the U.S. dollar.”
“Wide and Violent Swings” in Oil
“Historically, over prior bear markets in crude, it tends to take several quarters of very wide and violent swings [before a bottom]. This could be twenty, thirty and forty percent ranges so I think that’s what we’re seeing.”
Trend for Gold, Commodities Still to the Downside
“The major trend in gold is down. It’s been below a declining 200-day moving average for a while now. You can trade it from the long and short side but the major trend right now is down and until we see evidence of that long-term trend reversing it’s unlikely to see any type of sustained bull market. That doesn’t mean you can’t make money tactically, but again from our perspective the primary trend in most commodities right now is still to the downside.”
Major Concern: Multi-Year Volatility – Will it Spill Over to U.S. Stocks?
“The most concerning aspect globally from our perspective right now would probably be the increase in volatility across asset classes. While U.S. equity flows are relatively muted, you’re seeing multi-year high volatility in the foreign exchange market, bond market, and in emerging markets. So that could be a concern. Whether that dies down or it spills over to U.S. equity markets is still to be seen but that’s one thing that we’re keeping a very close eye on.”
Listen to the rest of this interview with Jonathan Krinsky on the Newshour page here or on iTunes here. Subscribe to our weekly premium podcast by clicking here.
