The market's opening gap-up move did not last very long before the major averages reversed to the downside. Volume was mixed with the NYSE trading lighter volume while the NASDAQ chalked up a 6th distribution day by selling off on heavier volume. All closed near their lows with the NYSE-based S&P 500 and Dow Jones Industrials indexes closing roughly at their 50-day moving averages in a retest of last week's initial move to the 50-day lines.
The NASDAQ is now roughly 3% off of its recent peak, while the S&P 500 is 4% off of its peak. So far this qualifies as a short-term correction, but the question remains open as to whether it develop into something worse. The bottom line is that investors should watch their stocks. Weakness is starting to spread to an expanding group of leaders, with the strongest group in this market, the bio-techs, seeing some of the heaviest selling recently. Big biotech leader Biogen Idec (BIIB) broke through its 50-day moving average on heavy volume as analysts cautioned on sales of its new multiple sclerosis drug in the European market. Big bio-techs Celgene (CELG) and Gilead Sciences (GILD) have also failed to regain their 50-day moving averages after getting knocked below these key areas of support over the prior week or so. Other leading biotechs Regeneron Pharmaceuticals (REGN) and Alkermes (ALKS) are right at their respective 50-day moving averages. While the biotech group has been hit during the recent spate of market weakness, the group overall is still ranked 4th, but the action in many bio-tech names is not constructive.
Investors have been conditioned to believe QE will ride in to save the day every time the market corrects, but there will come a time when it no longer is able to prevent a more severe market correction. Therefore investors must watch their stocks and adhere to selling guides, as this is the first line of defense given that one can never know for sure just how deep or how long any market correction will run.