Market Insider

Why small caps might be signaling bigger problems: Pro

Traders work on the floor of the New York Stock Exchange.
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Selling that started in small caps has spread to the major indexes, and now the S&P 500 and Dow are both signaling a possible broader selloff.

Paul LaRosa, chief market technician at Maxim Group, points out that the Dow and the S&P 500 both had "outside days" Thursday. That is when the trading range is above and below the prior day's range and closes below the prior day's low. The same phenomena happened in the Russell 2000 and Nasdaq last week.

"That led to significant underperformance in the Russell in the last week. What happened today was there were outside days in the Dow and S&P and that gives us some further evidence that some rough roads are ahead," said LaRosa.

The Dow fell 152 points Thursday, or nearly 1 percent to 15,593, a close below Wednesday's intraday low of 15,628. The S&P 500 was down 23 points, or 1.3 percent to 1,747, below Wednesday's low of 1,764.

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