A day after the Nasdaq rebounded forcefully but in weaker turnover, the tech-heavy composite got smacked by institutional-quality selling Thursday with an hour to go in a dismal market session. However, some last-hour bargain hunting took a little sting out of the broad decline.
X The Nasdaq, a 1.4% gainer Wednesday, had dropped more than 2% in afternoon trading and undercut its 50-day moving average for the first time since April 18. Yet the tech-weighted composite shaved that loss to 1.4% by day's end, closing a hair below the key support level.
In a strong bull market, the major indexes hold above their 50-day moving averages, which in turn run above their slower-moving 200-day moving averages.
Fiber optic telecom gear, semiconductor, chip equipment, enterprise software, e-commerce and Chinese internet companies led the decline, as did gold mining, automaker and homebuilder stocks. All of these groups fell 2% or more.
The Nasdaq 100 dropped 1.7%. At the session low of 5599, the gauge of the 100 largest nonfinancial companies on the all-electronic exchange dipped 5.1% off its June 9 peak of 5897.
That's large enough of a decline to justify IBD's decision Tuesday to downgrade the current market outlook to "uptrend under pressure" after the Nasdaq suffered its fifth distribution day in recent weeks.
The S&P 500 and the Dow Jones industrial average lost around 0.7% to 0.8% as volume picked up on both main exchanges vs. the same time Wednesday. The 500 scored a nice bounce off its 50-day line.
With one trading day remaining in the first half of 2017, the large-cap S&P 500 sports a year-to-date gain of 8.1%, vs. gains of 2.2% for the S&P SmallCap 600, which dropped less than 0.6% in the stock market today.
An uptrend under pressure doesn't necessarily mean a full-blown correction is guaranteed, but the prospects are certainly higher. A pullback would in fact be healthy for U.S. equities, given the strong gains since the Nov. 8 U.S. elections.
The last time the Nasdaq 100 dropped 5% or more was during a nine-day selling streak from Oct. 25 to Nov. 4, just ahead of the elections. The index slumped below its 50-day moving average, yet kept well above its critical long-term 200-day moving average.
Within the IBD 50, Lam Research (LRCX) signaled it's time to take at least some profits as shares dived further beneath the 50-day moving average.
The chip equipment expert slid more than 6% to 141.23 and is now 15% below its all-time peak of 167.05.
But other leaders in the IBD 50 continue to hold up pretty well.
Arista Networks (ANET), Nvidia (NVDA) and Veeva Systems (VEEV), representing innovation and leadership in the computer networking, graphic processors and medical software markets, continue to trade on the north side of their 50-day lines.
Apple (AAPL) slumped as much as 2.5% to as low as 142.28, then whittled the loss by day's end to 1.5% at 143.68. Apple is 8% off its all-time peak of 156.65; volume grew just 8% above its 50-day average.
Steeper declines would justify those shareholders who recently bought shares to sell them, in order to protect those gains made since the iPhone maker's Jan. 6-9 breakout from a first-stage cup with handle at 118.12. Apple is also barely above a 3-weeks-tight follow-on entry that was highlighted in IBD Leaderboard.
However, holders with a large profit cushion can afford the luxury of watching for the potential development of a new base, which would mean that Apple would again attract strong buying to the point of getting shares back to a high enough price level in which to break out again to new highs.
Despite some ongoing analyst concerns about the Cupertino, Calif., firm's ability to make good on a pledge to double its services revenue by 2020, Apple continues to be good at lowballing its forecasts and overdelivering. Keep in mind that the Street is expecting another quarter of low double-digit earnings gains for the June-ended fiscal third quarter, up 11%.
Apple's profit had slumped 18%, 23% and 15% vs. year-ago quarters during Q2, Q3 and Q4 of fiscal 2016, ended in September that year, but then rebounded 2% in Q1 (December) and 11% in Q2 (March 2017).
In other financial markets, government bond selling continued and the yield on the benchmark U.S. 10-year Treasury note rose again to 2.27%, the highest since May 23. Higher interest rates allow lenders, especially those with a low cost of attaining deposits, to expand their profit margins.
Therefore, as seen in today's New High List, banks and other large insurers gained ground.
However, homebuilders got smacked with losses, and IBD's Building-Residential/Commercial industry group slumped hard, down nearly 3.8%.
MDC Holdings (MDC) reversed just a day after its breakout past a five-week flat base at 36.09, falling more than 3% to 35.34 in above-average turnover. The Denver-based builder, however, is still in a handsome uptrend since clearing a longer cup-type base at 26.37 in November last year. The stock is also still on the north side of its fast-rising 50-day moving average, a sign of strength.
As seen in IBD Stock Checkup, MDC boasts excellent SmartSelect ratings, including a 98 Composite, 91 EPS and 93 RS.
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