The technology heavy NASDAQ Composite has held up better than the other major stock indexes such as the Dow Jones Industrial Average, S&P 500 Index, and the Russell 2000. As long as the NASDAQ Composite holds up and does not breakdown is tells us that people are still willing to take on risk. Please remember, most stocks in the NASDAQ Composite do not issue dividends. The majority of stocks in the NASDAQ are considered growth stocks, therefore, if this sector breaks down it is a sign that investors believe that the chance of growth is over for the time being.
Recently, the Dow Jones Industrial Average (DJIA) has been beginning to hold up better than the other major stock indexes. This tells us that investors are trying to find yield and have given up on growth. Please understand that all of the 30 companies in the DJIA pay a dividend and are considered multi-national blue chip stocks. Therefore, if you buy a stock such as Procter & Gamble Co (NYSE:PG) you know you will receive a dividend and you hope that the stock will not decline as fast as other stocks. For example, PG stock is one of the few stocks that are trading above all of the major daily chart moving averages. At this time, there are very few stocks that have been able to recapture the daily chart 50 moving average. When stocks trade below the daily chart 50 Moving average most institutional traders will view the stock as being in a weak technical position. Obviously, PG stock is in a strong technical position at this time.
The bottom line, when the Dow Jones Industrial Average is stronger than the other major stock indexes it is a negative for growth stocks. If this remains the NASDAQ Composite could be under some severe selling pressure. It is safe to say that these markets will remain very volatile in the near term. Traders should be aware that the technology sector could be the next major indexes to breakdown.