Does bloodletting in the 'fab five' momentum stocks spell doom for the broader market?

Back in February, I wrote a piece called The Fab five stocks for 2014 and why they matter in which I focused on five of the strongest U.S. large-cap stocks: Google (GOOGL), Netflix (NFLX), Priceline (PCLN), Facebook (FB) and Tesla (TSLA).

The gist was that these five stocks are the bellwethers for the bull market and must be watched closely in order to guage the health of the long-term rally in effect since the crisis lows of March 2009.

On Feb. 13, I wrote:

As these fabulous five names outperform, the bull market must be given the benefit of the doubt. If they falter, well, then watch out.

And while they all rallied Tuesday, the once "fab five" stocks have indeed faltered in a big way over the past month:

• Facebook has fallen 20% from its closing high of $72 on March 10;

• Tesla has fallen 17% from its closing high of $255 on March 4;

• Priceline has fallen 14% from its closing high of $1370 on March 5;

• Netflix has fallen 12% from its closing high of $392 on March 4;

• Google has fallen 9% from its split-adjusted closing high of $610 on February 26.

Where we are now

The smart quants at MarketMemory created a market-capitalization weighted composite of the "fab five" stocks and sent us the accompanying chart for our perusal. It peaked out near 550 in early March and has fallen almost 15% since, qualifying as a "correction" but not quite a "bear market," according to the accepted but somewhat arbitrary market standards.

MarketMemory founder Wayne Lloyd sent along the following commentary regarding the cumulative action in these names:

Even the largest-cap growth stocks are getting aggressively repriced. It is expected that each time the market reaches a new high that growth stocks will come under pressure as valuations get stretched, but this targeted selloff in these names has become a vicious cycle. Losses in portfolios with exposure to Technology and Healthcare growth stocks are substantial. This is happening with a backdrop of an all-time high in the S&P 500 and many investors are not aware that aggressive distribution is even taking place.

The stealth nature of the market correction Lloyd describes assumes that a majority of passive long-term investors might not even be aware of the damage that's been done in these types of names, as well as the biotechnology stocks — another leadership group that has been recently bludgeoned.

So where now?

While the Fab Five Composite has corrected around 15%, the broader market and large caps have held up relatively well by comparison, with the S&P 500 off just 2.2% from its all-time closing high set just last week. Meanwhile, the Dow Jones Industrial Average trades less than 2% below its recent all-time closing highs.

Perhaps what we are observing here is simply a healthy rotation out of the most aggressive names that were overheated and into more-defensive sectors such as utilities and basic materials, both of which are higher  over the past month -- by 6% and 4%, respectively.

However, given the violence of the move lower in momentum leaders, the divergence between the broad market and the "fab five" stands a greater chance of resolving by bringing indices down into 5% to 10% correction territory.

That being the case, we're more likely in a sell the rips environment.