# Are We Headed for a Market Correction?

Canonical: https://tradersdailydirection.com/are-we-headed-for-a-market-correction/

Are we headed for a market correction?

It’s possible.

In fact, you could argue that a correction has been underway for several months now.

Take a look at the chart below…

It shows the percentage of Nasdaq stocks that are trading above their 200-day moving averages (MAs).

![](https://lh4.googleusercontent.com/dSZ5aYuWpI0PrQK3Gzu8xxeWS3yCDjrxrqgKJI0_sIYnUUNWiFe9AkRa0kqRCGtBxyE-DWs6GT6kkC8CRmG8ok5GD8IkdsnwgkflvX5NUhcW4MKO7KR-Eo6ayXQWS9h18RFzE08i=s0)

**_Percentage of Nasdaq Stocks Above 200-Day Moving Average -- Source: StockCharts.com_**

As regular readers know, the 200-day MA is one of my favorite [**long-term trend indicators**](https://tradersdailydirection.com/why-stock-charts-should-matter-to-you/).

If a stock is trading below its 200-day MA, it tells me that the stock’s trend is bearish, and I will not buy it under any circumstance.

If the market was still in an uptrend, most stocks would be above their 200-day MAs, and the chart would be at the 50% level or higher.

But as you can see, only 35% of Nasdaq stocks are trading above their 200-day MAs. On the other hand, 65% of Nasdaq stocks are trading below.

This might surprise you. After all, the indexes have been grinding higher for several months.

![](https://lh3.googleusercontent.com/VEFaBpxMiqQE5BTGHRU7jSXOCRjgIBsub7rd8_VvD-EH9aEaTnigTrTpIZBbqrBo53uaMdz2XSsKmOUqqrEFdeFvspvDm6hvPNjQ6dxuUXnU0hW-Cn9UEzv91yTvCY0D8UvXJLe5=s0)

**_Daily Chart of Nasdaq Composite Index -- Source: StockCharts.com_**

This is exactly why I don’t use the indexes to tell me when to buy and sell.

They are market-cap-weighted, which means that the larger a stock’s market capitalization, the greater impact it has on the pricing of the index.

For example, just 10 stocks make up more than 50% of the weighting in the Nasdaq index.

But this small handful of names, which includes **Apple Inc.** (AAPL), **Microsoft Corp.** (MSFT), **Amazon.com, Inc.** (AMZN), **Tesla, Inc.** (TSLA), etc., are not indicative of how the 3,000 other stocks in the index are trading.

[**I’ve been talking about this divergence**](https://tradersdailydirection.com/caution-quicker-profit-taking/) between the index and stock participation for several months.

So, it shouldn’t be a surprise that stocks have come under pressure lately.

This mini correction has been going on since February. Participation has fallen from 87% of stocks to 35% while the index has moved higher.

This trend is unsustainable. And the market is beginning to show weakness in the bigger names.

![](https://lh3.googleusercontent.com/DWSMaV3_FRiYnwDPfWlfFEwzZZ8FURkc1hox_w9iGqfH8ydJIvgL3wvzGlS9Jgp1TXnAA5yDMrOHwWDHwPez-AqWKMvATraFhtnQHHdO1XlVGW2V6yYFURBhESkSm0lM58uLBBQc=s0)

**Performance Chart of Amazon.com, Inc. (AMZN), NVIDIA Corp. (NVDA), PayPal Holdings, Inc. (PYPL) & Facebook, Inc. (FB) -- Source: TradingView**

I’ve reduced my exposure substantially over the last two weeks. I’m still trading but at about 25% my normal size.

My plan is to keep my trading light until things firm up and start getting better follow-through in individual trades.

[**And as I mentioned last week**](https://tradersdailydirection.com/a-low-risk-trade-for-a-high-risk-market/), don’t hesitate to take some profits and lock in a gain if you have one when markets are shaky.

Embrace the Surge,