A surprise reversal in big-cap techs and a stunning sell-off in transport-related shares shook investors on Thursday amid the typical crush of quarterly results.
X The Dow transports got slammed 3.1% lower.
Meanwhile, Alphabet (GOOGL) had another poor session, falling 1.3% to 952.50 and losing ground for a third straight day. A breakout from a flawed six-week double-bottom base proved to be a fake-out as the operator of the Google search engine and YouTube video channel closed just one session above its 994.09 entry.
Such poor action, combined with failed support at the 50-day moving average (drawn in red on an IBD daily chart), justifies the new shareholder with selling shares to cut losses short. The 8% golden sell rule, though, has not yet triggered.
The double bottom featured two lows and a middle peak of 993.99, which was not far at all from its 52-week high. However, the crucial flaw came in the length of the base itself; a double bottom must be a minimum seven weeks long. That's why the base was more accurately treated as a flat base with a 1,008.71 buy point.
The Nasdaq composite slipped more than 0.6% while the S&P 500 edged less than 0.1% lower. On the Nasdaq, losing stocks beat winners by a 2-to-1 ratio. On the NYSE, the ratio was nearly 4-to-3.
The Dow Jones industrial average climbed 0.4%, despite seeing four of its 30 components lose 1 point or more. Among those four, Apple (AAPL) made its sharpest sell-off in weeks, dropping as much as 4% intraday and undercutting its 50-day moving average. The iPhone giant managed, however, to close above the key medium-term support line.
Despite Apple's decline, the stock remains in base-building mode with a potential new entry point at 156.75. Apple is also still up more than 27% since its Jan. 6-9 breakout from an early-stage cup-with-handle base, which marked the end of a long bottoming base pattern.
Volume grew on both main exchanges, according to early data, signifying Thursday as a distribution day, or a session of unusually intense selling.
Spirit Airlines (SAVE) plunged 18% to 40.05 in massive volume. The deep-discount no-frills airline operator from South Florida issued an early sell signal when the stock fell 7% below a recent cup-with-handle entry at 59.64.
In other words, after Spirit's breakout on May 2-3 in low turnover, the stock quickly turned tail and fell 7% below the 59.64 proper entry to 55.46.
Cutting losses short in all stocks is the key to preserving capital and maximizing gains in your biggest winners.
American Airlines (AAL), Delta Air Lines (DAL) and United Continental (UAL) all fell in sympathy after Spirit showed a 3% bump-up in second-quarter profit to $1.14 a share, snapping a three-quarter slump in profit and edging the consensus view. Revenue rose 20% to $701.7 million.
Among the four airline stocks, only American Air is currently finding buying support near the crucial 50-day moving average.
In the transport sector, logistics, shipping and trucking companies joined the airlines in falling 3% or more. Railroad, hospital, specialty enterprise software, education, fiber optical gear, chipmaking and semiconductor equipment stocks also were among 22 groups among 197 tracked by IBD that dropped 2% or more.
IBD's TAKE: Amid a long bull run, knowing defense-type sell signals can help you make a timely entry out of the leaders and retain most of your precious, hard-earned capital gains. One example is spotting a severe breach of the 50-day moving average, as noted in this Investor's Corner column.
In other financial markets, the yield on the benchmark 10-year U.S. Treasury bond rebounded to 2.31%, while WTI crude oil futures rallied 0.6% to $49.15 a barrel, the highest level since May 30 and a fourth straight up day. Gold futures have risen to $1,265 a troy ounce, the highest since June 14 on the Comex.
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