Leaders Index 2-5-16

It was an ugly session yesterday. The major averages opened lower and worked their way down the rest of the day. All closed at their intraday trading lows. The COMPQ led the way lower with a loss if 3.25% while the SPX fell 1.85%. Volume was mixed, higher on the Nasd and lower on the New York. They both however traded above average volume. Leading stocks were hit much harder than the overall market. The leaders index declined 4.54% on huge volume. The index finished very close to the bottom of it’s intraday range, a sign of weakness. It broke below all it’s short term moving averages and is now well below it’s critical 50dma. When a quality growth stock is below it’s 50 day it is usually considered broken. The index tried to get back to it’s recent highs but failed, also a sign of weakness. The damage in the index was across the board with four to six percent declines common and a couple fell in excess of ten percent. Only one stock in the IBD 50 was up yesterday. Some of the big news last week was the great earnings reports from FB and GOOGL that drove them to new highs on buyable gap ups. Both have now failed. In the past I have said that in the terminal phases of bull markets the advances get narrower and narrower until they are concentrated in a small number of mega cap stocks. We saw that last summer when the NDX was making new highs while the SOX was getting hit. Those few mega cap, mostly tech stocks, have broken down and there is nothing left to hold the major averages up. The pattern is looking like it did last year. The market would sell off and it would look like a real decline was under way only to have a sharp rally occur that causes some to say that a new uptrend was under way. That quickly failed and a new decline began. Follow through days in this environment are usually doomed to fail, particularly if they are poorly confirmed like the last two were. Unless you are a very skilled short term trader with a very short time frame there is little for you here. In this kind of market the best rule I think you can follow is reapply sunscreen often. Jerry