Nearly every trading session over the past month the major stock indexes have dipped in the first 90 minutes of the day, only to rally back throughout the lunch hour and often into the close. Today, the major stock indexes are plunging sharply lower at the start of the trading session.
Will this early sell off result in another stock market bounce that erases most of the early morning declines? Perhaps, but this time the decline is being led by the important NASDAQ Composite Index and the Russell 2000 Index. You see, the NASDAQ, and the Russell 2000 Index represent real risk taking because investors are looking for growth when they buy equities in these indexes. The Dow Jones Industrial Average is filled with dividend paying blue chip stocks which are often bought for income, this is unlike the NASDAQ and the Russell 2000 which have very few dividend paying stocks in them. So when the NASDAQ, and the Russell 2000 Index lead the major stock indexes lower it could be very meaningful and signal real distribution by the institutions.
Some leading sectors that traders should follow include the iShares Dow Jones Transportation Average (NYSEARCA:IYT), Market Vectors Semiconductor ETF (NYSEARCA:SMH), and Market Vectors Retail ETF (NYSEARCA:RTH). All of these important industry groups are falling lower today which is a negative indication. Over the past six months it has been very rare to see all of these equities trade lower simultaneously, it could be an indication that today’s sell off could be significant.