What Is The Smart Money Doing? [Dow Jones Industrial Average 2 Minute(INDEXDJX:.DJI)]

bearbull21Mike Burnick: Stocks remain under selling pressure this week as they have been since the start of the second-quarter of 2014. The Dow Jones Industrial Average reached a peak of 16,574 on April 4, and for the most part, it’s been downhill since then.

The selling appears to be mainly driven by institutions, the so-called “smart money” crowd persistently unloading shares in the late afternoon.

Interestingly, some of the stocks and sectors hit hardest with selling in recent weeks were among last year’s best performers. Meanwhile, last year’s laggards are performing well in April, despite the increased volatility.

For example, the hardest hit sectors this month include last year’s two top-performers: Biotechnology and Internet.

Just a year ago investors couldn’t own enough of the high-beta momentum stocks. Biotech shares surged 74.3 percent in 2013, the top-performing sector, while Internet retailers ranked a close second with a 73.5 percent gain. Internet software and services cracked the top 10 with a 48.8 percent gain.

Alas, momentum can cut both ways …

Since late February the Nasdaq Biotech Index has tumbled 21 percent, while the Dow Internet ETF (NYSEARCA:FDN) is down 13.9 percent.

And yet the selling hasn’t exactly been indiscriminant either. In fact, while many high-flying tech stocks have been hammered, other, more reasonably valued tech sectors are performing well.


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The same pattern plays out among healthcare stocks. Sure, biotech shares have dragged the entire sector down, but health care equipment stocks and managed care providers are two sub-sectors that have been largely immune to the sharp selloff.

That tells me the recent correction in stocks is more about sector rotation within the stock market rather than broad-based selling of all stocks. The big money appears to be cashing in some of last year’s big winners, and moving money into more undervalued sectors within the market.

And who can blame them after 70 percent-plus gains in biotech and Internet stocks last year?

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