Tech ETFs Sell On Fed Action
The stocks comprising the tech-focused
exchange-traded funds Wednesday needed more than a half-percentage point fed
funds rate cut to stay in the black. They headed south as soon as the Fed
announced its 50-basis point cut.
The Dow Jones Internet iShares
(
IYV |
Quote |
Chart |
News |
PowerRating)
lost 5.1%, the day’s sharpest loss among the exchange-traded
funds. The Internet HOLDR
(
HHH |
Quote |
Chart |
News |
PowerRating) 4.2%, the Internet Infrastructure
HOLDR
(
IIH |
Quote |
Chart |
News |
PowerRating) 4.2%, the Nasdaq 100 Tracking Stock
(
QQQ |
Quote |
Chart |
News |
PowerRating) 3.7%, the Internet
Architecture HOLDR
(
IAH |
Quote |
Chart |
News |
PowerRating) 3.7%.
The Biotech HOLDR
(
BBH |
Quote |
Chart |
News |
PowerRating), which
sometimes swims against the tech stock current, fell as well, sagging 3.2%.
Among its components, IDEC Pharmaceuticals
(
IDPH |
Quote |
Chart |
News |
PowerRating) slipped 6.1%, Human
Genome Sciences
(
HGSI |
Quote |
Chart |
News |
PowerRating) 5.0%.
Speaking with the benefit of
hindsight, of course, the poor reaction to the Fed meeting is understandable.
The February Fed
Funds Futures market had discounted practical certainty of a 50-basis
point cut days before the FOMC meeting. The only surprise would have been the
outside chance of a 75 basis point cut, a scenario given a 20% probability
according the oracle of the Chicago fed funds futures pit as of Tuesday’s
settlement.
The upside was limited Wednesday.
Among the gainers, the Cyclicals-Transportation SPDR
(
XLY |
Quote |
Chart |
News |
PowerRating) rose 3.3%, the
Dow Jones Chemical iShares
(
IYD |
Quote |
Chart |
News |
PowerRating) 2.2%.
Exchange-traded funds combine traits
of stocks and mutual funds. Like mutual funds, an ETF represents diversified
ownership in a number of different stocks, reducing company-specific
risk. Like stocks, ETFs trade on exchanges, nearly all of them in fact trade on
the American Stock Exchange. They quote throughout the day, enabling
traders to take advantage of intraday price moves.
If you’re new exchange-traded funds,
be sure to visit TradingMarkets’ Knowledge Center,
dedicated to explaining the basics of trading and active investing in ETFs and
mutual funds. Just click on the Funds tab
near the top of this page, then click on the Knowledge
Center tab.
You also will find lessons on trading
exchange-traded funds in the Stocks Education area of TradingMarkets.com. In
particular, check out my three-part series on trading ETFs, starting with
Average Crossovers. I also recommend newcomers read my tutorial,
HOLDRs: Unique Opportunity And Risk.
All stocks and exchange-traded funds
are risky. In any new trade, reduce your risk by limiting your position size and
setting a protective price stop where you will sell your new buy or cover your
short in case the market turns against you. For an introduction to combining
price stops with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.