The stock market rally isn’t quite dead. The S&P 500, Nasdaq composite and S&P 500 sold off Friday, but all held above their recent lows. But the semiconductor sector, along with key chips Nvidia (NVDA), Applied Materials (AMAT), Texas Instruments (TXN), is hitting undercutting recent levels, while Micron Technology (MU) wipes out big gains and flashes sell signals.
The chip action is worrisome for the stock market rally attempt. It’s for stocks to have a sustained advanced without chips taking part. For one, chips are a big part of the overall market, especially the tech sector. Second, if chip stocks are struggling, that could be a bad sign for demand in the vast array of products that use chips, from the Apple (AAPL) iPhone to a Tesla (TSLA) Model 3.
Chip Sector Slammed
The Philadelphia Semiconductor Index tumbled 3.1% on Friday, undercutting its April 2 low. The iShares PHLX Semiconductor (SOXX) ETF also did so.
Nvidia retreated 7.5% last week to a two-month low. Applied Materials skidded 5.9% to its worst levels since mid-February, approaching its 200-day line. Texas Instruments’ relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is at a two-month low. Several other chip stocks undercut recent lows, including Lam Research (LRCX), Apple chipmaker Skyworks Solutions (SWKS), Microchip Technology (MCHP) and NXP Semiconductors (NXPI).
Micron Technology was a rare chip stock that was a market leader in recent weeks. Micron had a powerful breakout from late February and rapidly ran up. But the memory-chip giant has sold off 23% from its March 13. On Friday, shares nearly completed a round trip back to the 47.08 double-bottom base buy point. Micron closed below its 50-day line.
Stock Market Rally Attempt Struggling
Another factors also aren’t encouraging. The three-day stock market rally came on increasingly light volume, while Friday’s sell-off came on heavier trade. That’s classic stock market correction behavior.
Some recent breakouts, such as Five Below (FIVE), Vipor Energy Partners (VNOM), fell back below buy points on Friday. Apple and Netflix (NFLX), which reclaimed their 50-day moving averages by Thursday, fell back below those levels on Friday.
Despite Friday’s big retreat, the put/call ratio came in at a relatively tame 1.04. That fear gauge is below the 1.15 level that often indicates a short-term bottom. The market has several big sell-offs over the past 10 weeks, only to bounce back quickly, sometimes that very day. So even a stock market correction, investors may be complacent.
Instead, that lack of investor panic should be one more reason to worry. If nothing else, the recent market swings should underscore the importance of not trying to jump back into stocks before a confirmed rally.
Market Rally Nearly Dead, But Not Dead
As long as the major averages hold above recent lows, the stock market rally attempt is still live. If one or more of the major averages rises strongly in heavier volume on Monday, that could confirm the new uptrend.
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