The stock market’s good vibes ended abruptly Tuesday as indexes tumbled in what could be the start of a needed break.
The Nasdaq composite erased an early 0.6% gain and slid into the close. Its 1% loss snapped a seven-day win streak as technology shares weakened broadly Tuesday.
The S&P 500 lost 0.6% and Dow Jones industrial average 0.7%, with both also closing near session lows. Volume rose on the Nasdaq, which gave the composite a new distribution day. Volume was indicated higher on the NYSE. If confirmed, it would add a fifth distribution day to the S&P 500, and the first in a week and a half.
From its March 3 low, the Nasdaq had rallied nearly 8% and the market was looking a bit extended from that sprint. The S&P 500 had run up five of seven days before Tuesday’s drop. Against that backdrop, both indexes painted a bearish outside day — when the day’s price range engulfs the prior day’s range.
Tuesday’s reversal resembled ones that presaged short-term pullbacks starting on Feb. 16 this year, as well as Aug. 8 and July 27 in 2017.
But while a breather might be in order, the indexes have a long ways to go before they show serious signs of breaking down. The Nasdaq and S&P 500 are trending upward. Both remain above their 50-day moving averages, although the Dow has met resistance at that level.
Breadth is constructive, with the advance-decline lines of the NYSE and Nasdaq near highs.
It’s always important to check on leading stocks, and many mirrored Tuesday’s reversal.
Apple (AAPL), Nvidia (NVDA), Adobe (ADBE), Lam Research (LRCX), Ligand Pharmaceuticals (LGND) and Booking Holdings (BKNG) made new highs before sliding lower. Investors will need to watch for pullbacks on those. But overall, sell signals are scarce among the leaders.
The IBD 50 fell about 0.8% but held near record highs. About 10 stocks in the IBD 50 have risen more than 20% from buy points, so it’s reasonable to expect a basing period to form on those charts.
At the same time, there are nearly twice as many that are forming bases or are in buy ranges. That indicates a new wave of breakout could be incubating. Alibaba (BABA), Cboe Global Markets (CBOE) and Diamondback Energy (FANG) are a few to study.
Stocks opened higher on news that core consumer prices, which exclude food and energy, rose 0.2% in February. But the annual inflation rate was steady at 1.8%, below forecasts. The soft inflation number eased the odds of a fourth interest-rate hike this year. The yield on the 10-year Treasury note eased to 2.84%.
It wasn’t clear what caused stocks to drop, but the chip sector got rattled after President Trump halted Broadcom‘s (AVGO) plans to acquire Qualcomm (QCOM), citing national security concerns. While the Qualcomm deal is dead, Broadcom is now expected to look for another buyout target. That should keep Wall Street’s interest in the chip sector, which already has seen some mergers.
The SPDR S&P Semiconductor ETF (XSD) was one of the weakest sector funds Tuesday, down 1.7%. The Philadelphia semiconductor index fell nearly 1.6%.
The transportation sector did well, partly on strength in airlines, which as of Monday’s close ranked 34th among IBD’s 197 industry groups. The Dow transportation average climbed 0.5%.
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