NASDAQ, Russell 2000 Signaling Buying Opportunity Ahead?

Folks, I’m beginning to get somewhat concerned about the stock market in the near-term. I’m not saying the stock market is going to crash, but there are some technical indications of a possible correction or adjustment in the near-term. 

The S&P 500 recently traded at a new intraday record, but the key stock market indices have declined in three of the last four sessions. What makes matters worse is that the downward slide in the stock market was associated with higher-than-average trading volume, which is a bearish indicator in technical analysis, as it suggests a pick-up in selling momentum. 

We all know that momentum can be good or bad depending on which way the stock market is going and whether you long or short the stock market. 

What concerns me is not only what’s happening in Crimea and the concerns regarding the Federal Reserve’s recent actions, which I have previously discussed. (Read “The Stock Market Needs to Do This in 2014 Before I Invest More in It.”) Rather, what really concerns me is that we are now seeing a breakdown on the charts of the momentum technology stocks that had helped to drive up past euphoria in the stock market. We are seeing many of the high-momentum stocks fall by 10% or more. This suggests fragility and a potential downward slide coming up for the broader stock market.

Also, the disappointing initial public offering (IPO) debut of King Digital Entertainment plc (NYSE/KING) yesterday was a red flag; it suggests that the IPO market may be losing some of its recent appeal or that traders are simply nervous about the uneasiness of stocks so far this year. 

While we are seeing some companies holding up in the blue chips and big-cap stocks, the same cannot be said for the higher-beta technology, growth, and small-cap stocks. 

Take a look at the charts of the Russell 2000 and NASDAQ below. Note that both indices have reached below their respective key short-term 50-day moving averages. This is bearish, and we could see a move towards their 200-day moving averages. The chart of the Russell 2000 also shows a bearish double top. 

 

Chart courtesy of www.StockCharts.com 

A closer look reveals something that triggers the red flags in my mind—the Russell 2000 is now down five percent from its recent record-high. 

Given the market weakness, all of the key stock indices are negative in March, with the NASDAQ and Russell 2000 down 3.14% and 2.37%, respectively as of March 27. 

 

Chart courtesy of www.StockCharts.com 

In addition, the NASDAQ, DOW, and Russell 2000 are also negative in the first quarter on this final day of March. The muted trading action so far this year contrasts significantly with last year’s, when the stock market was booming and nothing could stop it. 

At the end of the day, while I’m holding on to my January assessment that the stock market will end up higher this year, the red flags appearing on the NASDAQ and Russell 2000 charts suggest we could be heading for additional market weakness, so investors need to be careful. 

Of course, if stocks fall by more than five percent, you should be sure to have funds available for a possible buying opportunity. 

This article NASDAQ, Russell 2000 Signaling Buying Opportunity Ahead? was originally posted at Profit Confidential