Zhitong Finance APP learned that on Wednesday, the small-cap stock index (Russell 2000 Index) fell 1.1%. What's even more terrifying is that its 50-day moving average crosses the 200-day moving average from top to bottom. When this happens, both moving averages are falling, a technical pattern known as the "death crossing." Jake Gordon, an analyst at Bespke Investment Group, said the death crossover is often interpreted as a bearish signal. Jamie Cox, managing partner at Harris Financial Group, said small businesses have been under pressure because they are very sensitive to interest rates and their cost of capital increases as interest rates rise, adding that biotech companies make up the vast majority of the companies with the largest declines in the Russell 2000.
Although the index has fallen about 7% since the beginning of the year, 15 companies in the index have fallen by more than 40%, with Aligos Therapeutics (ALGS.US) falling by more than 70%, and companies such as Tenaya Therapeutics (TNYA.US), Avalo Therapeutics (AVAC.US) and Cyteir Therapeutics (CYT.US) all falling by more than 40%.
Cox said the companies were priced incredibly high, so when capital costs rose, the premiums of these biotech companies that rose due to the coronavirus assessment were pulled.
However, according to Bespke, this technical model may not be as terrible as it sounds. Gordon wrote that over the past 40 years, the Russell 2000 index fell 0.9% in the week after experiencing a death crossover, while over a longer period of one and three months, it has risen by more than half.
