Electronics firms paced a sharp decline in the tech sector and the Nasdaq composite dropped the hardest among the major indexes on Tuesday, down 1.6%.
Volume grew on both main exchanges, according to early data, signifying a new distribution day, or unusually heavy institutional selling.
X The Nasdaq composite gave back more than half of last week's stout 1.9% gain. Among IBD's 197 industry groups, at least five electronics-related groups sank 1.5% or more, including semiconductor equipment, fabless semiconductors, contract manufacturing and chipmaking.
IBD'S TAKE: Which were the best 10 industry groups in the market today? And the 10 worst? See the price changes of all 197 industry groups by viewing the entire "Industry Sub-Group Rankings," available at Data Tables in the Stock Lists section of Investors.com.
The S&P 500 slipped nearly 0.8% while the Dow Jones industrial average fell 0.5%. A rebound in department store, home furnishings retailing, jewelry, discount and variety retail, consumer lending, superregional bank, oil field services and hospital stocks helped cushion the blow.
Investor demand for banks rose as the yield on the benchmark U.S. 10-year Treasury bond jumped 6 basis points to 2.20%. The sharp sell-off in bond prices came on the back of comments by Fed chief Janet Yellen that appeared to favor additional interest-rate hikes this year.
The Dow utility average, also sensitive to interest rates, caved almost 1.4%. At 720.66, the sector gauge is still up an impressive 9.2% since Jan. 1.
Investors who are sitting on large gains in the semiconductor sector need to keep a hawklike eye on sell signals or other indications that these leaders are ready to take a significant break.
Lam Research (LRCX), KLA Tencor (KLAC), Applied Materials (AMAT) and ASML Holding (ASML) are all leaders in the Chips sector, which through Monday's close ranked second among 33 IBD broad sectors; Electronics took the top spot.
Lam, a member of the IBD 50, dropped more than 2.9% to 144.62 in heavy volume. The supplier of systems for wafer etching and cleaning slid further below its rising 50-day moving average. The undercut of the key support line is Lam's first significant move below that line since late April of 2016.
Given Lam's big run over the past year, it's sensible now to take at least partial gains.
Lam initially broke out of a long first-stage saucer-with-handle base at 83.61 in June 2016. After a slow start, the large-cap tech began to accelerate its gains and show heavy turnover in July through October of the same year. At its recent peak of 167.05, Lam gained as much as 99%.
KLA, meanwhile, is also issuing a sell signal as it fell even further below its 50-day line. Shares dropped more than 2% to 93.8 and are now 14% off the 52-week peak of 109.59.
Applied Materials, the $45 billion large-cap leader in IBD's semiconductor equipment group, also took out its 50-day moving average with a nearly 3% loss to 41.89 in volume that grew 25% above normal levels. ASML, down 1% to 132.37, is also testing its 50-day line.
In IBD's Electronics-Scientific/Measuring industry group, Coherent (COHR) slid nearly 5% to 225.68 in fast turnover and gouged its 50-day line for the first time since October 2016. In the fabless semiconductor industry group, Broadcom (AVGO) fell 3% to 235.33 and is testing support at the intermediate-term support line for the second time since April.
Elsewhere in the chip sector, thinly traded Power Integrations (POWI) bucked the widespread decline, rising nearly 3% to 74.90 after winning a supply deal from Apple (AAPL). Volume shot more than five times Power's 50-day average of 163,000 shares.
Fund sponsorship in Power Integration, a small cap at $2.2 billion, has risen over the long term. At the end of the first quarter, a total 370 mutual and hedge funds owned shares, up from 319 in the year-ago quarter.
Apple sank more than 1% to 143.74 in quiet volume. A further drop below the 50- and 10-week moving averages would affirm a pair of sell signals triggered two weeks ago: a sharp drop through these key support lines, and a round-trip of gains after Apple rushed past a 141.12 three-weeks-tight follow-on entry point.
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