S&P 500 Nasdaq Break Support: What You Should Do Now

Futures for the S&P 500 index, Nasdaq 100 and Dow Jones industrial average were mixed late Thursday, following broad-based selling during the regular session.

XAutoplay: On | OffIn Thursday's trading, the Nasdaq composite and S&P 500 index undercut their 50-day moving averages. Apple (AAPL), Nvidia (NVDA), Sina (SINA), Morgan Stanley (MS), Square (SQ) and Qualys (QLYS) were among the many leading stocks falling below recent buy points Thursday, with Square and other top stocks breaking through 50-day support. Some recent breakouts are struggling to hang on, such as Netflix (NFLX).

In the after-hours session, Nvidia reported blowout Q2 earnings and bullish Q3 revenue guidance. But Nvidia shares still fell further. Snapchat-parent Snap (SNAP) was a different story with the same ending. Snap's adjusted loss, revenue, user growth and average revenue per user missed forecasts, sending shares crashing toward record lows.

S&P 500 index futures were essentially flat vs. fair value. Nasdaq 100 futures lost 0.22% against fair value while Dow futures were 0.1% higher.

IBD'S TAKE: If you want to understand the state of the market, pay attention to the major averages and leading stocks. Read IBD's Stock Market Today columns throughout the market day, and the end-of-day The Big Picture (take a free trial) for timely market analysis and highlighted growth stocks breaking out of proper bases.

Due to the negative action Thursday and in recent days for the major averages and leading stocks, the market direction has been downgraded to "uptrend under pressure" from "confirmed uptrend."

So what should you do as an investor now?

Pay close attention to the major averages and leading stocks.

Distribution days are piling up rapidly on the Nasdaq composite, signaling institutional selling.

In isolation, many top stocks don't look that bad. Apple fell 3.6% on Thursday to 155.32, back below a 165.75 flat-base entry. If markets improve, Apple could easily regain that entry. But combine that with Nvidia, Square, Electronic Arts (EA) and others that have sunk back into bases, and the overall trend does not look favorable.

Netflix is technically back in buy range after sinking 3.8% Thursday. But after two days of selling in above-average volume, Netflix is close to round-tripping from its late-July post-earnings breakout. Netflix falling about 1% in late trade doesn't help.

Keep a tight leash on your holdings.

The market is not in a correction. But consider taking profits in winning stocks. Don't let a hefty gain turn into a loser. Cut losses as quickly as possible.

Be very cautious about making new purchases.

When the market turns lower or even just choppy, it's hard to make money. Yes, there will be breakouts, like Planet Fitness (PLNT) on Thursday, but they will be less common and more likely to fail.

The CBOE Volatility Index (VIX), or VIX, is a de facto gauge of market fear. It spiked Thursday to its highest levels since mid-May, nearly hitting a nine-month high, after sinking to record lows in late July. The put/call ratio is elevated. Extreme levels can signal market turns. But keep in mind that these are secondary indicators vs. the more-important primary indicators of the major averages and leading stocks.

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