Biotech, Growth ETFs Have a Volatile Trading Day as Investors Struggle to Make Up Their Minds

In a volatile day of trading, the Nasdaq opened up and briefly climbed to a gain of 0.8 percent, began a steep sell-off that took losses all the way to 1.9 percent by 1 pm, then made a rally in the second half of the trading day to pull back into the black and close at a gain of 0.29 percent.

This whipsaw action also hit the other major indices, though both the Dow Jones Industrial Average (DJIA) and S&P 500 ultimately fell much less and recovered more than the Nasdaq, as investors continue to struggle to make up their minds about the current state of affairs.

It appears as though the markets themselves are currently in a battleground state with the bears and bulls unable to figure out if last week represented a brief correction before a spring boom or the start of a broader decline as tech, biotech, and other growth stocks plummet off of the highs reached in last year’s bull market.

In the meantime, ETF investors, generally used to relatively little price movement, are currently experiencing plenty of volatility as the broader markets continue to shift back and forth.

Risk On, Risk Off?

Among the day’s biggest movers were ETFs and indices tracking growth stocks and other riskier plays. The movement here appears to really reflect a lack of consistency currently roiling the markets.

If the markets are entering a long-term correction, investors are likely going to flee risk-on plays like tech stocks, small-caps, and biotechs. However, if this current downturn is just setting up a spring surge, the sell-off on those same stocks could just be creating a buying opportunity.

And, until more economic data sheds some light on just how much of the recent sluggishishness can be attributed to harsh winter weather, that question appears to be ready to continue hanging over the stock markets. And, without resolution, more volatile trading days could be yet to come.

The trading range on some key ETFs Tuesday would seem to support this contention. The iShares Russell 2000 Growth Index ETF (IWO) , a key ETF for small-cap growth stocks, opened slightly up, was down as much as 2.5 percent by mid-day, and still managed to finish up 0.25 percent for the day.

Similarly, the SPDR Technology Select Sector ETF (XLK) finished up 0.51 percent after being down as much as 1.2 percent, and the Vanguard Information Technology ETF (VGT) showed almost identical movement. The Guggenheim Solar ETF (TAN) finished down over 2 percent, but this was after recovering from a low of a 6.3 percent loss, and the Global X Social Media ETF (SOCL) gained 0.78 percent despite being down as much as 3.3 percent.

This heavy swing down and then up did mean the S&P 500 Volatility Index, better known as the VIX, rose to big highs, gaining as much as 8.6 percent at its peak, and swung to big lows, closing the day down 3.1 percent.

Biotechs Plunge, then Rebound

Once again, it appears as though biotech stocks were leading the charge coming and going, with the major ETFs tracking the sector losing heavily before bouncing back hard.

The iShares NASDAQ Biotechnology Index ETF (IBB) was down as much as 3.7 percent at its lowest point before recovering to finish with a gain of 1.04 percent, while the SPDR S&P Biotech ETF (XBI) fought off losses that reached 5.8 percent to finish a hair up (0.18 percent to be specific) at day’s end.

Biotechs remain a closely watched sector as speculation that the segment was in a major bubble has been swirling for months. For now, despite today’s rebound, it would appear that biotechs are, at the very least, experiencing a choppy but firm correction. Shares in XBI are down over 25 percent from their 52-week high reached in late February, and IBB is off over 20 percent in the same period.

Future Remains Very Murky

For anyone hoping for the market to provide clear answers, Tuesday was not what they were looking for. Monday’s modest gains could easily be viewed as consolidation before another downturn, but the mid-day rally from the market Tuesday only appeared to make things even more confusing.

For now, it appears as though the bulls are ready to match sell-offs in growth stocks with what they likely see as value buying, while the bears seem to sense an imminent collapse and keep shedding stocks that could be viewed as risky.

In the meantime, roiling markets like these appear to be making otherwise stable ETF plays act in a much more volatile fashion. The SPDR S&P 500 Index ETF (SPY) swung from over a three-quarters percent loss to a nearly three-quarters percent gain in the span of a mere three hours, a much larger move than anyone watching this key ETF would be accustomed to seeing in a full day let alone after lunch.

Friday will bring the Labor Department’s monthly jobs report, showing data for March 2014. It’s possible that this could be a key report, giving the markets the news item they need to bounce back or push even lower.