The NASDAQ Composite Index broke down through its 50-day moving average decisively yesterday on heavier volume, while the S&P 500 staged an outside reversal day on heavier volume as well. Leading stocks, which have been getting hit hard for the past 2-3 weeks, were hit hard again yesterday as an increasing number of leaders, such as Facebook (FB), start to violate their 50-day moving averages. The relatively better performance of the NYSE-based indexes, given that the S&P 500 remains about 1% above its 50-day moving average, has been characterized by a general shift towards low P/E, stable, old-line big-cap names as institutional investors take a more defensive posture and cycle out of high P/E high-flyers. Investors who have been heeding clear sell signals in leading stocks should be naturally raising cash as the market continues to weaken and forces them out of stocks.
Gold dropped below its 200-day moving average as the selling in stocks will logically spread into other areas such as commodities. The message of the market is clear: investors should be playing strong defense here and taking action to protect themselves as necessary.
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