If there's one thing traders have been watching to track the hot move into—and now the super fast move out of—momentum stocks, it's the IBB.
The iShares Nasdaq Biotechnology ETF has been the tip of the arrow when it comes to trading momentum. It peaked at 272.23 on Feb. 25 and has since lost nearly 18 percent. It now hovers precariously above its 200-day moving average and was down more than 4.3 percent at midday Thursday.
Selling in momentum resumed early Thursday and snowballed, taking the broader market lower with it, the day after dovish Fed minutes gave stocks their best day in more than a month.
The Nasdaq once more led the declines after a two-day reprieve. It was off 2 percent in afternoon trading, erasing Wednesday''s gains. The Dow was down 0.8 percent and the was off 1.3 percent. The small cap Russell 2000 was off 1.8 percent, and the S&P 400 midcap index was off 1.5 percent.
"People definitely are watching IBB because that was the first group this year to really break down," said Scott Redler of T3Live.com. "That was the leading indicator on whether growth was going to sell off or was going to reverse. Today, the IBB pretty much gave back all of yesterday in the first 30 minutes. That took quick momentum out of the morning trade. That put some fear back into the morning trade, and put skepticism on whether the previous two-day bounce was for real."
Besides watching individual stocks, like momentum leaders Facebook and Netflix, there are other ETFs Wall Street is following to track the hottest names that ballooned into the end of last year and have been selling off for the last several weeks. Global X Social Media Index ETF SOCL, an ETF for social media stocks, was down more than 1.8 percent Thursday, and FDN, the First Trust Dow Jones Internet Index Fund, was off 2.7 percent.
But IBB has been the sentiment leader, and it's looking bearish. IBB was among the first to fumble on Thursday, as the market opened slightly higher. Facebook was higher Thursday morning, following its strong gains from Wednesday, but it and others reversed.
"The problem with all these momentum names is there's no individual index that has them all in there," said Michael O'Rourke, chief market strategist at Jones Trading.
"Since there's so many biotech names that have been part of the momentum trade, … if you're going to watch one ETF or one index, it (the IBB) will give you a good snapshot."
O'Rouke said the ETF is obviously not a good representative for all momentum since it doesn't include Internet or social media stocks like Facebook or Workday.
"But since the group has been moving together, people do watch (IBB)," he said, adding he also follows SOCL closely.
IBB has been holding above its 200-day moving average of 219. "In the selloff, it got to 221. We're still several percent above that, but I'd still say it's testing it," he said.
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Redler said if IBB does break the 200-day and doesn't quickly return above it, it would be negative for the whole group and market. "If you break the 200-day and you can't get back above it, … that tells people there's more downside to go," Redler said.
O'Rourke said a catalyst that boosted IBB in the past year was the mergers by biotech companies with Irish incorporated companies. "It became very popular to do this tax arbitrage. The problem is the stocks went so far that they're obviously correcting with the momentum-type names," he said.
A negative catalyst for the group came March 21 when it looked as if Washington was getting set to meddle with a group that had been a market leader. Rep. Henry Waxman, D-Calif., and other lawmakers sent a letter to a biotech industry leader Gilead Sciences, raising questions about the expensive pricing of its new Hepatitis C drug.
A major pharmaceutical trade group Thursday defended Gilead's new drug, Sovladi. The Pharmaceutical Research and Manufacturers of America said the treatments were a priceless breakthrough for those suffering from Hepatitis C. The treatments are $1,000 a day, or $84,000 for a 12-week treatment.
News of the letter hit just two days after Fed Chair Janet Yellen spooked markets with her comment that the Fed could move to raise rates six months after ending its bond buying program. The Fed reversed much of that concern Wednesday, with very dovish language in the minutes of its last meeting.
Read MoreDovish Fed lowers rates expectations
Some biotechs spiraling lower Thursday include Perrigo, Valeant , and Alexion.