Out of the Nasdaq composite's 2,558 stocks, 1,269 are down more than 20 percent off their 52-week highs as of Tuesday's close, based on data from FactSet. Another 636 are down between 10 percent and 19.98 percent.
That means three-quarters of the companies in the Nasdaq are in a correction or are outright bearish. However, among Nasdaq companies valued above $10 billion, only a one-third are in correction or bearish territory.
Richard Ross, global technical strategist at Auerbach Grayson, sees the number of Nasdaq stocks that are greatly off their 52-week highs as a troubling sign. "Market breadth, which talks to the advancers and decliners … is a very important technical indicator that technical analysts have looked at for 100 years," he said. "A narrowing of the market whereby fewer stocks are making new highs—that is somewhat worrisome."
While some may point toward tech giants like Apple, Microsoft, Cisco and Intel as stocks keeping the Nasdaq strong, Ross sees them as the last line of defense before the index as a whole takes a turn for the worse.
"What if they saw a meaningful correction?" Ross asks rhetorically. "Then clearly these indexes would not hold up."
Ross sees a few examples of troubling signs within the Nasdsaq composite's chart. He believes there's "a cluster of resistance" near the 4,600 level. The index closed at 4,552.76 on Tuesday.
"The all-time monthly closing high of the Nasdaq composite is at 4,696," said Ross, a "Talking Numbers" contributor. "That's well within shouting distance—less than 100 index points—from the recent highs. That's a peak that was established at one of the biggest bubbles in financial history. So if we were to fail at these levels, it would establish a double top here in a trading range that goes back to 2000. That's a 14-year trading range. … Any failure around 4,600—4,700 would be a disaster."
With most of the Nasdaq eroding, a few large companies are propping up the index. "Keep an eye on those big stocks," Ross warns. "This year's winners are not necessarily going to be next year's winners. Any sign of weakness, any sign of stress in those stocks, [and] you have to look out below."
For Gina Sanchez, founder of Chantico Global, the weakness in breadth is due to investors getting fearfully defensive ahead of potential interest rate increases in the near future.
"This potential defensiveness—if in fact the Fed moves up its timeline for potential rate hikes—[will not] be taken well by the market at all," said Sanchez, a CNBC contributor. "This slosh of liquidity is going to be taken away and all of a sudden, all of these things that are propping up earnings—and propping up everything that we know about the market—are going to go away."
Sanchez doesn't believe there's enough demand in the economy to take the place of the Federal Reserve's monetary stimulus which set to come to an end next month. "I am concerned this is a sign of defensiveness and could be the beginning of something bigger," she said.
To see the full discussion on the Nasdaq Composite index, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.