By the end of trade on Monday, the Dow and S&P had closed lower but it was the action in the Nasdaq that the Fast Money traders were watching most closely.
High-beta tech leaders such as Amazon , Priceline and Netflix dragged down tech broadly, with the Nasdaq ending the session as the worst of the three major indexes.
Although it’s no surprise that investors would take profits in these high fliers, the selling is concerning because some investors think it may be the start of a trend.
"Last week, we had the SOX (semiconductor index) falling, and this week, the Nasdaq 100 is leading the way down," says John Kosar, director of research at Asbury Research in a Reuters interview. "It's weak price activity, and not the kind of activity associated with a normal, healthy bull market that's about to go higher."
The profit taking comes ahead of the expected end to the Federal Reserve's stimulus program next month.
Jeffrey Saut, Raymond James Financial chief investment strategist says as QE2 ends, there is a chance of "the first decent correction (since the rally started) because people will worry ... if the economy is going to gain enough traction" to thrive on its own.
That doesn’t bode well for the broader market. But that’s not to say a sell-off is a foregone conclusion, either.
Stocks still could see gains in the near term, however, because investors chasing performance may keep buying. "You have the...potential for an intermediate top between now and the end of the quarter," Saut says.
Will the tech sell-off spread to the overall market?
Instant Insights with the Fast Money traders
Trader Guy Adami thinks the action in tech could be a sign of something more serious. He’s watching the action of 4 stocks he considers market bellwethers; Apple , Google , Goldman , and Freeport . Over the last few month they're all down sharply, he says.
What does that mean? They're either leading or lagging. In other words, “either Apple, Google, Goldman and Freeport are about to rocket higher or the S&P is about to follow them lower and we’re looking at a serious sell-off.”
Joe Terranova is also expecting a move lower but nothing serious. “The evidence does not suggest a deeper dive,” Terraniva says. In other words, he does not expect a correction of 10-15%. “Right now defensive names are supporting the tape,” Terranova argues. “Health care is doing well and so are consumer staples. I think that supports the market.”
Adami doesn't buy the Terranova's thesis. “Can the market rally in any meaningful way without technology and without financials?” he says. (Financials have been challenged for most of 2011.)
Although Terranova concedes the market probably can’t rally without tech and banks, he does thinks it can go sideways.
Tim Seymour is somewhere in between Adami and Terranova. He thinks the market feels heavy and says investors almost want to be disappointed. However he also thinks on a relative basis the S&P is cheap. "13 times is not a lot," he says.
What do you think? We want to know?
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Trader disclosure: On May 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Stephen Weiss is short (X). Stephen Weiss owns (DVN), (COP), (QCOM), (BRCM), (TEVA), (KO), (RIG), (HK), (AKAM), (UUP), (DE), (UAL), (MRK), (HBAN), (KEY) and (JPM); Terranova owns (VRTS); Terranova owns (AAPL); Terranova owns (JPM); Terranova owns (V); Terranova owns (BX); Terranova owns (UPL); Terranova owns (BAX); Terranova owns (PFE); Terranova owns (PEP); Terranova owns (MCD); Terranova owns (TM); Terranova owns (DIS); Terranova owns (BJ); Terranova owns (APA); Terranova owns (OXY); Terranova owns (XOM); Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Karabell owns (RIMM); Karabell owns (SLV); Karabell owns (AAPL); Karabell owns (GE); Karabell owns (GOOG)
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