Market Analysis and Summary
The divergence that has existed between the NASDAQ and S&P 500 for the better part of a month now, finally resolved to the downside. The NASDAQ ultimately rolled over and closed below its 50-DMA, where it joined the S&P 500, Russell 2000 and the DOW. The distribution count stands at 6 days on the NASDAQ and 8 on the S&P 500.
Fortunately, we have seen the market quickly recover from short, sharp bouts of selling, similar to this one in the recent past. So, the final nail is not yet in the coffin, however, the market needs to shape up in short order and it must continue to be supported by a broad base of healthy, constructive leadership.
Leading growth stocks succumbed to the selling pressure in the general market over the last few sessions. We saw the same thing happen about a month ago, when the indexes cracked sharply lower on 9/9. Leading growth stocks weakened with the major indexes then as well, but quickly recovered. Will they recover quickly this time?
On one hand, recent breakouts have struggled and quite a few names have declined below their 50-DMA’s. On the other hand, the majority of the market’s leadership is still in pretty good shape and there are plenty of leaders that found support at their 50 day lines and bounced constructively. As long as healthy rotation persists and high quality, leading growth stocks continue to form constructive bases and break out, we see no reason why the market can’t ultimately turn around and reassert its uptrend.
That being said, we would still maintain a very cautious approach. Between the Presidential election and nervousness around interest rates, there is plenty of uncertainty in the air, which in turn can lead to volatility. Nevertheless, we would still consider buying a big, liquid leader when it provides an “optimal entry point,” like BABA did this morning, shortly after the open.
The NASDAQ fell 0.24% on heavier volume and closed well below its 50-DMA, adding a distribution day. However, the index bounced at logical support and closed well off its lows, which points to subtle accumulation.
The Russell 2000 tumbled 1.34% on heavier volume, as it continued even further below its 50-DMA.
The S&P 500 fell 0.24% as volume on the NYSE expanded and added a distribution day, although its count remains at 8, because a day fell off due to time
The DOW fell 0.25% on heavier volume yesterday, although it shook out constructively below its recent, prior low and finished the session in the upper half of its range, which is constructive.