Market Analysis and Summary
The major indexes all fell on heavier volume yesterday, which brings the distribution count back up to 5 days on the NASDAQ and 3 on the S&P 500. The NASDAQ closed just barely above its 50-DMA, The S&P 500 cracked below its 21-DMA and appears to have its 50-DMA in sight. The Russell 2000 closed a hair below its 21-DMA and its 50-DMA is not far below, while the DOW held up the best. Yesterday was the first time the DOW closed below its 10-DMA since it broke out to new all-time highs, but still finished the session slightly above its 21-DMA.
There were very few pockets of strength across the market’s leading industry groups yesterday. Some financial names finished higher, but other than that, the groups of stocks containing the most highs were defensive in nature. At the top of the list was chemicals/paints, insurance, machinery, containers/packaging, etc. Leading technology stocks, especially the semiconductors, along with the leading medical/biotech stocks were hit hard yesterday.
When the market is selling off at a furious pace and the majority of the market’s leadership is taking it on the chin, it’s a clear signal to back away, especially if you are on margin. Selling should begin with laggards and losers. The idea is to lean your portfolio down to your core positions.
Non-core positions in the portfolio that are healthy, constructive and exhibiting notable relative strength can also be held. However, you must have enough of a profit cushion in the stock and/or in your portfolio to justify doing so. Otherwise, until we see how the NASDAQ handles its 50-DMA and more importantly, how leading growth stocks act from here, we would minimize exposure and operate defensively.
The NASDAQ fell 1.61% as volume expanded and added a distribution day, although it found support at its 50-DMA.
The Russell 2000 fell 0.93% as volume declined and closed above logical support.
The S&P 500 fell 0.81% as volume on the NYSE expanded and added a distribution day, although it found support well above its 50-DMA.
The DOW fell 0.46% as volume expanded and found support at its 21-DMA.