The S&P 500 could soon follow Nasdaq down

The stock market has been mired in a strange dichotomy over the last week.

Large-cap stocks in the S&P 500 have been doing just fine as the index slides sideways just below record highs, constrained by the 1,880 level. The Dow Jones Industrial Average has also had a spring in its step, with repeated attempts at its early March highs this week.

But the tech-heavy Nasdaq Composite is a different story, threatening to close below its 50-day moving average on Thursday for the first time since January. The index is already down nearly 4 percent from its early March high as big tech and biotech stocks sputter and stall amid intensifying selling pressure. Until now, these two groups helped power the Nasdaq in what's been a picture perfect uptrend out of the late 2012 lows.

In fact, the Nasdaq Composite hasn't closed below its 20-week moving average since December 2012. That's a run that beats, in terms of persistence, anything we saw during the dot-com bubble. And certainly, the atmospherics feel similar to that time: Hot-revenue growth stocks touting dubious business plans are rushing to IPO -- including Airbnb and King Digital Entertainment (KING) -- while once-hot IPOs like Twitter (TWTR) and Groupon (GRPN) are faltering.

Big tech momentum favorites like Amazon (AMZN), Facebook (FB) and Google (GOOG) are also buckling under the pressure as uptrends that were too good to last are coming to an end.

Amazon is below its 50-day moving average for the first time since October. Facebook is falling hard after the market responded negatively to another big-bucks acquisition, this time of virtual reality systems maker Oculus for $2 billion. And Google has lost the momentum that has prevailed since reporting solid earnings back in October, which took the stock from $900 to nearly $1,229 in just five months.

Can the S&P 500 continue to resist what's happening to the Nasdaq? The evidence suggests it won't.

For one, fewer and fewer stocks are holding the index aloft as measures of market breadth weaken -- a sign that buyers are finding fewer and fewer issues attractive at these levels.

Two, there just isn't any cash left on the sidelines. According to Jason Goepfert at SentimenTrader, the available cash sitting in money market accounts has dropped to a 34-year low. He calculates this in terms of how much of the stock market this idled cash could buy. According to his measure, available cash has dropped below the lows seen at the 2000 and 2007 market peaks.

And finally, investors have been heavily rotating out of economically sensitive "risk on" sectors like technology and biotech into more defensive areas like utilities. It's been the most pronounced shift since early 2013, with the normally sleepy Utilities SPDR (XLU) up nearly 9 percent year-to-date while the Dow is actually in negative territory.

In response, I've recommended that my more aggressive clients move into put option positions against big tech names such as Amazon and Facebook. The April $65 Facebook puts recommended on March 21 are up 154 percent as the stock moves lower. For everyone else, simple profit-taking and raising cash allocations is the best strategy here.

Disclosure: Anthony has recommended put option positions in AMZN, FB and GOOG to his clients.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.