Wall Street saw some rotation out of outperforming technology stocks and some money going into other sectors, particularly finance and banking. Transportation and select retail stocks also gained ground.
XAutoplay: On | OffThe Dow Jones industrial average paced the upside among major indexes, up around 0.4% as nine of the 30 Dow Jones industrial components rallied 1 point or more. That advance offset a 4.51-point drop by fellow Dow 30 stock Apple (AAPL).
The iPhone, iPad and digital services giant is still up from a breakout at 160.97 in a cup with handle base. The stock is now back in buy range, but it’s preferable to see if Apple can dust itself off after Wednesday’s steep fall and rally before considering a new buy.
The S&P 500 was off 0.1%. The Nasdaq composite fell 1.4% but remains close to its all-time high of 6914.
The bitcoin-tracking Bitcoin Investment Trust (GBTC) ETF suffered a negative reversal, rising to as high as 1,823.99 before sliding nearly 4% to 1,414. Volume is running nearly quadruple the normal pace.
Despite the drop, Bitcoin Investment Trust is still sharply extended from last week’s breakout past a 985.10 buy point in an unusually deep cup with handle.
Meanwhile, a bunch of names in the IBD 50, which through Tuesday’s close was up more than 39% since Jan. 1 vs. a 17.3% lift for the S&P 500, sold off hard. Many of the 50 top-rated companies saw losses of 5% or more, including YY Inc. (YY), IPG Photonics (IPGP) and Ichor (ICHR). Yet among these three, only IPG Photonics has issued an IBD-style sell signal.
IPG lost as much as 8.7% to a session low of 220.47 before shaving some of those losses. Watch to see how the industrial laser maker closes; the biggest single-session point loss in heavy turnover since the breakout is one key defense-type sell signal.
However, as seen in a daily chart, the midcap still holds a decent air pocket above the rising 50-day moving average. So, holders with large gains can of course lock in some profits, but they can also see if the stock generates a new high-quality base, which could potentially set up a new breakout.
While IPG is showing the type of action that may signal a change in character and good reason to lighten one’s exposure, it’s still unclear whether the general rally in tech stocks is done, or simply taking a well-needed pause.
The chip sector certainly got pounded on Wednesday. The Philadelphia semiconductor index at one point fell more than 4%. Applied Materials (AMAT) and Lam Research (LRCX), both part of the IBD Big Cap 20, got pummeled as well.
As seen in their daily charts, both of these large-cap leaders in semiconductor equipment have now undercut their respective 50-day moving averages. That alone is not a sell signal, however, as great stocks can recover and eventually move back above the key medium-term support line.
In these situations, it’s good to examine the weekly action and watch how a leading stock ends on Friday. If stocks such as Applied and Lam can bounce off their weekly lows and finish high in the range, it’s a telltale clue that institutional appetite for growth stocks is still healthy.
Another reason to keep holding tech stocks: earnings are strong and revenue is likely to keep increasing in the current quarter. Plus, some observers are noting stable economic growth in the EU despite controversy over Brexit and problems for Germany to create a new coalition government. In the U.S., GDP growth is accelerating.
A third reason: IBD’s current outlook for the market, for now, remains “Confirmed uptrend.” In recent days, the distribution-day count on the Nasdaq has declined, meaning that pronounced institutional selling has abated.
Wednesday’s sell-off, however, is a sign of heavy profit taking amid concern over the fate of the tax reform package proposed by Congress, which could get a final vote in the Senate later this week. Also, the Federal Reserve’s Beige Book, released in the afternoon, pointed out that “price pressures have strengthened.” This could give the U.S. central bank more conviction to raise the cost of money sooner than later.
A quarter-point hike in the fed funds rate to a target range of 1.25%-1.5% is all but assured when the Fed meets on Dec. 12-13.
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