Markets Sell Off as Nasdaq Enters Correction – Is a Turning Point Ahead?

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

U.S. stocks declined during what ended as the worst week for some major indexes since early September. Trade tensions weighed on the market as the S&P 500 fell for the third week in a row and posted its steepest weekly decline since last September. The index lost -3.1%, faring slightly better than the NASDAQ’s -3.4% loss.

The S&P 500 is now down about 2% for the year, while the technology-heavy Nasdaq is down about 6%. After two years of 20%+ returns in the S&P 500, though, some period of consolidation and pullback was probably warranted, and thus far, markets are acting orderly.

Defensive Sectors Take the Lead

Markets have taken a defensive posture in recent days. Defensive sectors, like health care and consumer staples, are leading, while momentum and technology sectors are lagging. Bond markets have provided support as well, with Treasury yields moving lower since January, in part because additional Fed rate cuts have now been priced in by markets.

The NASDAQ entered a correction on Thursday, as sharp declines for many of its technology stocks left the index more than 10% below the high reached a couple of weeks earlier, as well as its record level set nearly three months ago. While the S&P 500 and Dow were also down sharply from their recent peaks, those indexes didn’t fall below the 10% correction threshold yet.

An index of U.S. large-cap growth stocks lagged its value counterpart by a wide margin, extending the value equity style’s year-to-date comeback following growth’s market leadership in 2024. The growth index closed down 3.9% for the week on a total return basis, while a value index fell just 2.4%.

Market Rotations & Sector Shifts

Perhaps what is most notable are the rotations in the market happening underneath the surface. Investors are taking a more defensive posture across asset classes. In stocks, defensive, or “recession-proof,” sectors are now showing leadership, including health care and consumer staples. The lagging sectors are those that have had the strongest momentum and rise in valuations, including technology (whose highest weights are in Apple, Microsoft, and NVIDIA) and consumer discretionary (whose highest weights are in Amazon and Tesla).

A Key Technical Rebound?

Also worth noting is that Friday’s midday bullish reversal moved the S&P 500 back above its 200-day Simple Moving Average (SMA), which could help stabilize investor confidence near-term. While I don’t think we are done with volatility for the month of March, Friday’s price action appears to be an encouraging development, if only from a near-term trading perspective.

Traders will need to stay nimble in this higher volatility environment, but I believe the near-term setup is relatively bullish, given the numerous oversold indicators we saw late last week:

✔️ SPX dropping to longer-term support at the 200-day SMA
✔️ Sub-30 RSI readings on the NDX/RUT
✔️ A 25+ reading on Cboe’s Volatility Index (VIX)

As a result, I’m looking for Friday’s potentially important bullish reversal to continue near-term.

However, these are VERY volatile times, and the intermediate direction is not crystal clear. Next week should prove vital in determining if we are at or near a KEY market turning point.

In any case, we always “Trade What We See Technically, Not What We Think.”

*No credit card required