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Dow Up, Nasdaq Stalls, Chip Stocks Reverse Badly; Sell Apple Now?

Apple (AAPL), one of the true tech forces in an outstanding 2017 for the Nasdaq composite, showed poor action Thursday, closing below the 50-day moving average.

The megacap tech's 1.8% drop to 171.11 came in above-average volume, the second straight heavy-volume decline.

The Nasdaq, also hurt by some wild trading in the semiconductor sector, edged less than 0.1% lower but the Dow Jones industrial average, boosted chiefly by its industrial components such as United Technologies (UTX), 3M (MMM) and Caterpillar (CAT), rallied more than 0.5%.

The S&P 500 added less than 0.1%. Deep declines in homebuilding, airline, chip equipment, RV, automaker and gold mining shares hurt the major U.S. indexes. The Dow transports sold off again, losing 1.6%. At 11,007, the sector index still holds a 3.7% gain since Jan. 1, but that now significantly trails a 7.3% year-to-date rise for the Nasdaq composite.

At 2839, the S&P 500 boasts a 6.2% advance since Jan. 1 with four trading sessions left in January.

The S&P SmallCap 600 led the day with a 0.4% lift. Volume on the NYSE and Nasdaq dropped from Wednesday's levels.

Within the recreational vehicle industry group, Winnebago Industries (WGO) flashed a defense-type sell signal as shares dropped 4.35 points, or 8%, to 49.

The leisure and transport stock play, a nice winner in 2017, slumped even further below the important 50-day moving average in volume that was 178% above the 50-day moving average.

The 50-day moving average is an important tool for knowing when to sell and capture solid price gains in leading stocks. Drawn as a red line in IBD's daily charts, it traces the average closing price of a stock or an index over the past 50 trading sessions. Once a new trading day is completed, a new average close is computed and plotted on the chart; thus, the average is "moving."

Healthy leading stocks hold above their 50-day moving averages. After a strong breakout, a mild pullback to or near the 50-day line (or the 10-week moving average on a weekly chart) for the first or second time offers a follow-on buy opportunity.

Winnebago has rallied as much as 57% after breaking out of a long and deep cup with handle at 37.30 on Sept. 6 last year.

Notice how Winnebago also gave an early sign of a potential change in character on Jan. 16 as the stock clipped its 50-day line in heavy volume. That was the first close below the mid-term support and resistance level since late August.

Going back to Apple, watch to see how the largest company by market cap in the U.S. financial markets finishes for the week.

For now, an 11.9% gain for the iPhone and digital services titan from an Oct. 27 breakout past a second-stage cup with handle at 160.97 has been whittled down to 6.2%.

One of the key sell rules in IBD investing: Don't allow a 10% or more gain in a stock to turn into a complete round trip.

Plus, the stock's relative strength line, painted in blue in all IBD and MarketSmith charts, has been diving over the past five sessions. That's a bad sign, because a falling RS line means a stock is underperforming the S&P 500.

The action by Apple, certain chip plays such as Broadcom (AVGO) and other Apple component suppliers, also hints at institutional money rotating a little bit more out of tech and into cyclical and commodity-focused sectors.

Broadcom, a humongous winner since the 2009 major market bottom, dropped nearly 4% to 247.25 in steep volume and undercut its long-term 200-day moving average. In doing so, the diversified semiconductor giant also did a round trip of gains following an Oct. 30 breakout past a 259.46 buy point in a nine-week flat base.

Broadcom reportedly is a major chip component supplier to Apple.

Those with outsize gains in Apple, however, have the luxury to be patient and check whether institutional investors see the recent sell-off as a brand new opportunity to buy shares and shore up the stock. As seen in a weekly chart, Apple is trading only 1% below the 10-week moving average, which moves similarly with the 50-day line on a daily chart.

Apple began its impressive run back on Jan. 6, 2017, when it rallied out of a bottoming base pattern. Back then, it formed an excellent cup with handle that presented a proper buy point at 118.12.

Since then, Apple's fundamentals have greatly improved, and the company has even posted mild double-digit growth (EPS up 11%, 18% and 24% in the past three quarters, revenue up 12% in fiscal Q4).

However, as reported by IBD tech writers, some analysts are concerned about the sales figures of Apple's latest flagship, the iPhone X.

For now, the fiscal Q1 EPS estimate has not changed as Wall Street consensus is for earnings to rise 13% to $3.80 a share.

Elsewhere, chip equipment leader KLA Tencor (KLAC) dropped nearly 2% to 113.16 after being up as much as 5.9% intraday. The stock's uptrend is still intact, but continued negative reversals in heavy turnover would indicate that some institutions are heavily taking profits.

On Dec. 18, KLA bolted past a 110.11 buy point in a base on base, but the ride has been volatile.

As seen in IBD's stock research tables, which are ranked by performance among 33 distinct industry sectors, the Chips sector has fallen in the rankings after being in one of the top 3 spots for a long time in 2017. As of Jan. 24, Chips are now ranked No. 10. (See the complete rankings by going to Data Tables in the Stock Lists section of Investors.com, then click on IBD Smart NYSE + Nasdaq Tables.)

Bitcoin Investment Trust (GBTC) rose nearly 1% to 1,686, gaining for a second straight session. But the fund still lies beneath its rising 50-day moving average. Shares are also still 52% below a 3,522 peak.

Gold futures fell, sending the SPDR Gold Shares (GLD) ETF down 0.8% to 127.93 in double normal turnover. Watch to see if the popular exchange-traded fund can climb back above a recent breakout point at 128.42.

In crude oil markets, near-term WTI futures dipped nearly 0.6% to $65.24 a barrel.

(Please follow Saito-Chung on Twitter at @IBD_DChung for more commentary and analysis on financial markets, high growth stocks, and breakouts.)

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