Small-cap index surprised "death cross"? It's the biotech stocks that do the trick

On Wednesday, the small-cap index (Russell 2000 index) fell by 1.1%, and what is more frightening is that its 50-day moving average crossed the 200-day moving average from top to bottom. When this happens, both moving averages are falling, a technical pattern known as a "death crossover." Jake Gordon, an analyst at Bespuck Investment Group, said the death cross 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 will rise as interest rates rise, adding that biotech companies make up the vast majority of the companies that have fallen the most from the Russell 2000 index.

Although the index has fallen by about 7 percent since the start of the year, 15 companies in the index have fallen more than 40 percent, including Aligos Therapeutics (ALGS. US) fell more than 70%, Tenaya Therapeutics (TNYA. US)、Avalo Therapeutics(AVAC. US) and Cyteir Therapeutics (CYT. US) and other companies fell more than 40 percent.

Cox said the companies are priced incredibly high, so when the cost of capital rises, the premiums that these biotech companies go up on covid-19 assessments are pulled away.

Still, according to Bespucker, this model of technology may not be as scary as it sounds. Over the past 40 years, Gordon wrote, the Russell 2000 index has fallen 0.9 percent in the week after experiencing a death crossover, and more than half of its gains over a longer period of 1 and 3 months.