One day does not necessarily make a trend, but one group of ETFs that have been among this year’s best performers flashed ominous signals during Tuesday’s market plunge.
Of the 15 worst non-leveraged ETFs on Tuesday, including four of the six worst offenders, were biotech ETFs. That list included the SPDR S&P Biotech ETF (NYSEArca: XBI), the Market Vectors Biotech ETF(NYSEArca: BBH) and the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB). Tuesday’s dour performances for biotech ETFs comes despite the fact that four biotech funds reside on the list of 2013’s 10 best non-leveraged ETFs. [Bad News for 2013’s Best ETFs]
What is concerning about Tuesday’s biotech downdraft is that although biotech stocks and ETFs are considered to be higher beta fare, the sub-sector has previously proven sturdy in the face of an array of macro headwinds. Last year’s debt ceiling debate, Europe’s sovereign debt woes, this year’s plunge in emerging markets stocks and sequestration, among other factors, have not derailed biotech ETFs. [Biotech ETFs Shine in July]
It appears the first U.S. government shutdown since the 1990s may be cryptonite for IBB, XBI and friends. If that is the case, risk-tolerant traders may want to have a look at the ProShares UltraShort Nasdaq Biotechnology (NasdaqGS: BIS). While leveraged funds tracking sectors such as financial services, energy and technology get plenty of attention, BIS lives in relative anonymity.
With long biotech funds soaring, it is easy to see why, but BIS might be getting ready to breakout of its shell. Jumping 8.3% on volume that was 13.5 times its daily average Tuesday is a good place to start.
While not suitable for all investors, BIS is a straightforward play. The ETF attempts to deliver twice the daily inverse performance of the NASDAQ Biotechnology Index, IBB’s underlying index. That means those making a long bet on BIS want to see the largest biotech names falter.