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After Another Stock Market Sell-Off, Here's The Biggest Question For Investors

The stock market Wednesday pared losses as the major indexes touched a bearish milepost, and now come to a critical juncture.

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The Dow Jones Industrial Average lost 0.9% and pitched significantly below its 200-day moving average. The industrials are now around 25,000 — near a level of support dating back to early February.

Dow component Johnson & Johnson (JNJ) skidded 4% to its lowest price since late January. The company has decided to fight a lawsuit over opioids in Oklahoma, rejecting the option to settle with the state like other companies have. J&J still faces huge liabilities from talcum powder lawsuits.

Meanwhile, the Nasdaq composite shed 0.8% and the S&P 500 0.7%. Both indexes sank to their 200-day averages for the first time since early March. Both bottomed around the 200-day lines and started to reduce losses in late trading.

The Key Question For The Stock Market Today

The question is, will the major indexes rebound like they did at these previous lows? While the answer won't be clear for at least a few days, a deeper decline below these key levels will only worsen the stock market correction.

Small caps are more than 10% below prior highs — losses that traditionally define an intermediate correction. The Russell 2000, which had been lagging most of this year, fell 0.8%. Its relative strength line has been trending lower since late February.

Indexes closed off session lows thanks to some buying that emerged in the final hour of the session.

Volume rose, according to unconfirmed figures. Declining stocks led advancers by about a 2-to-1 ratio on the NYSE and Nasdaq.

More declines in Treasury yields frightened investors. The 10-year Treasury note's yield fell to 2.23%, down 3 basis points. The gap with the three-month Treasury bill is now -13.6 basis points, the most negative spread since August 2007, according to Tradeweb.

Every S&P sector declined Wednesday. The worst was retail, with the SPDR S&P Retail ETF (XRT) down 2.2%, touching the lowest price since Dec. 27.

It was a dreadful day for earnings reports in apparel retailing. Canada Goose (GOOS) plummeted 31% in intense trading after the luxury winter wear company reported mixed quarterly results. Capri Holdings (CPRI) sold off 10% after it beat views but gave weak guidance.

Abercrombie & Fitch (ANF) earnings topped but same-store sales missed. Shares collapsed 26.5%.

Lululemon Athletica (LULU) slid sharply below its 50-day moving average in heavy trading. The sudden sell-off cost Lululemon its spot on IBD Leaderboard.

Lululemon also caused the most damage on the IBD 50. The Innovator IBD 50 ETF (FFTY) fell 1.5%, though it certainly had no shortage of losers: 15 of the 50 stocks fell 2% or more.

Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia

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