Leaders Index 2-5-18

Today was ugly to say the least. After opening lower the major averages made a weak rally attempt and then rolled over to suffer large losses. The selling lasted throughout the session and all the major averages closed low in their intraday trading ranges. The New York averages were the weakest with the SPX lower by 4.10% while the COMPQ declined 3.78%. Volume was higher and well above average on both exchanges as large institutional players were heavily selling stocks. All the major averages are now below their important 50dma former support, and now resistance, levels. Leading stocks were hit hard as well with the leaders index falling 5.38% on the session. The index closed near the bottom of its trading range and broke below its 50dma. Volume was higher and well above average. The relative strength line of the leaders index is also about to break below its 50dma. There isn’t much good you can say about today’s action as the melt up has turned into a meltdown. Serious damage has been done to both the major averages and quality growth stocks in the last week or so. Heavy selling has driven the distribution count to levels that have been associated with corrections. The critical 50dma has been breached by all the major averages and the leaders index and many of the best leading stocks have broken down badly. The market is approaching a very important point. The major averages are off their highs in about the 7% range. This is clearly a correction and is at the outer limits of a minor correction. The eight percent level contains about 75% of all corrections and when this level is breached the chances of an full-fledged intermediate correction of between 12% and 15% increase dramatically. This is the worst pull back we have had in more than two years and all the gains we made in January have been erased in three trading days in February, not a lot of fun. We must see the market hold current levels or very close to them or the rally is likely over and we will see lower prices ahead. Jerry