Among all the sectors that went higher, the most interesting was the biotech sector (IBB). IBB is I believe a concentration of what has occured to the general market in past years: a few overweight stocks have pushed indexes higher due to ETFs which force investors to follow the leading stocks.
For example, on Friday BIIB which makes 7.8% of IBB had some good review/results on a leading alzheimer drug and gained 16% at the open. IBB hence opened up by 1.01% (0.91% of this gap up was due to BIIB only.) IBB gained 1.037% for the day, with 0.93% - the big chunk of that gain - coming from BIIB.
However, we can see below that AMGN, CELG and GILD all attracted good money and broke out... even though they are not making a competing drug to BIIB.
The same issue is taking place on a much larger scale on the NQ100 and the S&P500 as a few NQ8 very liquid stocks have been attracting all the available liquidity, forcing the general markets higher due to ETFs popularity.
If we get a closer look at the most popular ETFs: QQQ/SPY, we can see that the price bounce is not bought.
On the Treasuries front, we can see a continued negativity.
Finally, the Canadian market hardly attracted money on Friday. Hence, the good expectation in the US is being translated as a negative expectation for the Canadian economy.
Conclusions:
I do not want to sound overly pessimistic here, but I wonder how much higher investors will want to climb their wall of worries:
- Chinese trade issues (shrinking revenue)
- QE unwind (shrinking liquidity)
- Higher rates (shrinking margins)
The coming earnings season could very well decide the fate of this market: if some NQ8 stocks fail or guide lower, then ETFs selling could easily push prices lower on consecutive down gaps.
