The major indexes pulled back sharply on heavier volume across the board Friday, which raised the distribution count up to 5 days on the NASDAQ and 4 on the S&P 500, yet the major indexes are still holding up relatively well. The NASDAQ and Russell 2000 are trading back below their 50-DMA’s, although not by much. More than likely though, Friday’s action was just more of the same headline related volatility that has been plaguing the market since the end of July.
Leading growth stocks struggled as rotation continued to thin out the herd. Quite a few medical/biotech names took a beating last Friday as many saw follow through to the downside. Also, there was continued weakness in many of the leading software names that posted enormous gains over the last year or so, although this is normal and to be expected.
More importantly, there are still plenty of fundamentally sound stocks from across the market’s leading industry groups forming constructive bases, that could easily lead the market higher from here. Remember however, our job is to interpret, not predict. So, continue to keep exposure to a minimum, or remain on the sidelines in cash until a more favorable environment develops.
The NASDAQ fell back below its 50-DMA on heavier volume Friday, adding its fifth distribution day in a short period of time, which is a red flag.
The Russell 2000 rolled over and fell back below its 50-DMA on heavier volume last Friday and barely managed to close above its key, long-term 200-DMA, although it could still easily recover from here.
The S&P 500 fell on heavier volume last Friday and added the fourth distribution day to its count, although it closed well off its lows, above its 50-DMA and still looks constructive.
The DOW sold off on heavier volume last Friday, but has drifted just slightly lower over the last couple weeks and continues to hold up constructively above its 50-DMA.