Some of the stock market's best-performing growth stocks have come under heavy institutional selling pressure in recent days. And the question on investors' minds now is if the selling will ultimately spark an intermediate-term correction for the major stock indexes.
The Nasdaq composite slumped 2.2% in higher volume Friday, marking its sixth distribution day since Jan. 24. The Nasdaq also lost support at its 50-day moving average, normally a key support level. Weak action in market-leading growth stocks — along with increasing signs of institutional selling in the major indexes — can create roadblocks for a market uptrend.
The S&P 500 also flashed a distribution day Friday — its fourth since Jan. 27 — and the benchmark index on Monday lost support at the 50-day line and the 6,000 level.
Despite some recent selling, the major stock indexes still aren't far from their all-time highs. But for individual investors with a portfolio of growth stocks, now is the time to look for sell signals in current holdings and take steps to protect capital.
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Stock Market Tide Flowing Negative
What is known right now is that the stock market tide is flowing negative — not just because of pesky distribution days on the Nasdaq and S&P 500, but also because of increasing weakness in market-leading growth stocks.
A defensive posture while raising some cash makes sense as the stock market worries about inflation and a potential slowdown for the economy in the second half of the year.
For those who are still recording a big gain in Palantir Technologies, taking some profits makes sense after shares plunged nearly 15% last week in heavy volume. Technically, Palantir hasn't flashed a sell signal yet as the software giant holds above its 50-day line.
But it's a different story for stock market leader Axon Enterprise, which plunged below its 50-day line last week. Earnings are due Tuesday after the close.
Nvidia Tries To Recover
Meanwhile, Nvidia has recovered a bit after a sharp drop below its 50-day line on Jan. 27. Nvidia is testing the support level again with earnings due Wednesday after the close. The bellwether in artificial intelligence chips continues to show sloppy chart action after it broke out from a 14-week consolidation in October.
But the breakout didn't get very far, and Nvidia started moving sideways again. The stock tried to break out during the week ended Jan. 10, but Nvidia reversed lower in higher volume. The sell signal came when Nvidia plunged through its 10-week line in late January due to the DeepSeek sell-off.
Constellation Energy flashed a sell signal Monday after a sharp break through its 50-day line. The nuclear power giant blasted out of a 13-week consolidation last month and scored a nice gain. But it also triggered a sell signal after the DeepSeek selling.
Contract manufacturer Celestica, another big stock market winner, gave a sell signal after a decisive break of its 50-day. But the stock bounced back sharply. After two straight days of heavy-volume declines, and another taking shape Monday, Celestica is testing its 50-day line again.
Above all else, investors shouldn't try to catch big stock market leaders on sale as they pull back in price, especially those growth stocks that are falling in heavy volume and rallying back in light volume. Early signs of institutional selling in a stock, in the form of higher-volume declines, can often presage even more weakness.
Follow Ken Shreve on X @IBD_KShreve for more stock market analysis and insight.
