Tech and biotech stocks hit a rough patch

It's been an exciting few days in the market. While the major large-cap averages are hanging just below record highs, much of the rest of the market is coming under intense selling pressure focused on two of the most popular sectors: Big tech and biotech.

Just look at the way Google (GOOG), which has been on a tear since reporting good earnings back in October, is collapsing below its 50-day moving average and is on track for its first five-day decline since January 2013. Or the way the iShares Biotech (IBB) is on track to close below its 100-day exponential moving average for the first time since late 2012.

There's more. Momentum favorites like Tesla Motors (TSLA), Netflix (NFLX), and Twitter (TWTR) are all rolling over badly.

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The overall impression is that investors are rushing for the exits, spooked by last week's surprisingly hawkish read from new Federal Reserve chairman Janet Yellen in which she indicated that not only is the ongoing "QE3" bond purchase program set to end but short-term interest rates could start rising as soon as this time next year. That's sooner than the market had priced in. And it's shocking to many given the recent slowing in the economic data.

Sure, there are some sector-specific drags happening:

For biotech, selling was encouraged by a letter from House Democrats raising concern over the pricing of Gilead Sciences' (GILD) Solvadi hepatitis C drug, which costs $84,000 per treatment. Although GILD recovered from steep losses on Thursday to finish with a small gain, the bloom has come off the sector group as lofty valuations come under pressure from possible political pushback.

But the overall market is feeling heavy. So it's not surprising that the most extended, most vulnerable stocks roll over first.

Consider that the number of S&P 500 stocks in uptrends has rolled over for the first time since early January after setting a much lower high. When the market peaked in January, nearly 84 percent of S&P 500 stocks were in uptrend; but now, we only hit a peak of 78 percent. That's a sign of buying exhaustion as traders found fewer and fewer attractive issues during the February-March rally.

Or that we've seen a frantic rotation out of cyclical, economically-sensitive sectors like technology into more defensive areas like utilities over the last few weeks. While much of the market is in the red year-to-date, the Utilities Sector SPDR (XLU) is up more than eight percent. In fact, we're looking at the most meaningful rotation into defensive stocks since early 2013.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

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