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S&P 500, Nasdaq Break Support: Four Steps You Should Take Now – Investor's Business Daily

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Futures for the S&P 500 index, Nasdaq 100 and Dow Jones industrial average were mixed early Friday, following broad-based selling Thursday.

XAutoplay: On | OffIn Thursday’s trading, the Nasdaq composite and S&P 500 index undercut their 50-day moving averages. Apple (AAPL), Nvidia (NVDA), Sina (SINA), Morgan Stanley (MS), Square (SQ) and Qualys (QLYS) were among the many leading stocks falling below recent buy points Thursday, with Square and other top stocks breaking through 50-day support. Some recent breakouts are struggling to hang on, such as Netflix (NFLX).

Nvidia late Thursday reported blowout Q2 earnings and bullish Q3 revenue guidance, though some cited concerns over Q2 data center revenue. Nvidia shares tumbled more than 7% Friday morning, after big losses on Thursday before results. Snapchat-parent Snap (SNAP) was a different story with the same ending. Snap’s adjusted loss, revenue, user growth and average revenue per user missed forecasts, sending shares crashing 13% toward record lows.

S&P 500 index futures fell 0.1% below fair value. Nasdaq 100 futures lost 0.3% against fair value while Dow futures were essentially flat.

Asian markets retreated, with China’s Shanghai composite off 1.6% and Hong Kong’s Hang Seng 2%. In European trading intraday, the U.K.’s FTSE lost 1.2%, Germany’s Dax 0.3% and France’s CAC-40 1.1%.


IBD’S TAKE: If you want to understand the state of the market, pay attention to the major averages and leading stocks. Read IBD’s Stock Market Today columns throughout the market day, and the end-of-day The Big Picture (take a free trial) for timely market analysis and highlighted growth stocks breaking out of proper bases. 


Due to the negative action Thursday and in recent days for the major averages and leading stocks, the market direction has been downgraded to “uptrend under pressure” from “confirmed uptrend.”

So what should you do as an investor now?

  • Pay close attention to the major averages and leading stocks.

Distribution days are piling up rapidly on the Nasdaq composite, signaling institutional selling.

In isolation, many top stocks don’t look that bad. Apple fell 3.6% on Thursday to 155.32, back below a 165.75 flat-base entry. If markets improve, Apple could easily regain that entry. But combine that with Nvidia, Square, Electronic Arts (EA) and others that have sunk back into bases, and the overall trend does not look favorable.

Netflix is technically back in buy range after sinking 3.8% Thursday. But after two days of selling in above-average volume, Netflix is close to round-tripping from its late-July post-earnings breakout. Netflix fell 1.3% to 166.95 early Friday, right at the 166.97 entry.

  • Keep a tight leash on your holdings.

The market is not in a correction. But consider taking profits in winning stocks. Don’t let a hefty gain turn into a loser. Cut losses as quickly as possible.

  • Be very cautious about making new purchases.

When the market turns lower or even just choppy, it’s hard to make money. Yes, there will be breakouts, like Planet Fitness (PLNT) on Thursday, but they will be less common and more likely to fail.

The CBOE Volatility Index (VIX), or VIX, is a de facto gauge of market fear. It spiked Thursday to its highest levels since mid-May, after sinking to record lows in late July. The VIX continued to climb overnight, setting nine-month highs.

The put/call ratio is elevated. Extreme levels can signal market turns. But keep in mind that these are secondary indicators vs. the more-important primary indicators of the major averages and leading stocks.

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