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Stocks got pummeled on virtually all corners of the market on Monday, but it’s not at all clear if the market is ripe again for a new market correction. Meanwhile, Intel (INTC) cut its early losses bullishly and Boeing (BA), which triggered a key sell signal on Wednesday for recent new shareholders, edged higher for a second straight session.
The Nasdaq composite dropped the hardest among the major indexes, falling nearly 2%. At one point, the tech-driven index was down as much as 2.6%.
But even at the intraday low of 7285, the Nasdaq actually stayed above its important 50-day moving average. The leading index, currently up nearly 6% year to date, also stands 4% below its March 13 peak of 7637.
The Dow Jones industrial average, hurt by eight of its 30 components falling 2 points or more, sank 1.3%. The S&P 500 lost 1.4%. Defensive issues paced the upside, including gold mining and food names.
Solar stocks also bucked the decline, and IBD’s Energy-Solar industry group ranks a solid 32nd among 197 industry groups for six-month relative performance. While Canadian Solar (CSIQ) helped lead the way, rising more than 6% to 16.59 in heavy turnover on big Q4 results (earnings up 321% to $1.01 a share, revenue up 66% to $1.11 billion), the true leader in the group is IBD 50 name SolarEdge Technologies (SEDG).
Boeing undercut its 50-day moving average deeply on Wednesday in big volume, a clear-cut signal that some institutions eagerly took profits after the aerospace giant’s big run. However, on Friday it did not usher a second sell signal despite falling 6.8% for the week.
The reason? Boeing saw heavy turnover last week, but it didn’t rise more than 40% above the 10-week moving average. The Dow Jones industrial component also saw a little bit of lift off its lows for the week.
IBD research has found that when a true market leader takes out its 10-week moving average in a big way and weekly volume screams more than 40% above average, it’s usually a very reliable indicator that a greater correction is underway. So for those who do not have a large profit cushion, taking at least partial profits is a savvy portfolio-management move.
The Dow utility average fell 0.8%. The yield on the benchmark U.S. Treasury 10-year bond is around 2.85% ahead of a two-day Federal Reserve meeting on interest rating that starts Tuesday.
Megacap techs bore the brunt of the selling, as did large-cap and midcap names in the semiconductor, computer and telecom gear sectors. Alphabet (GOOGL) fell 3% to 1,100.07 in fast turnover and dove below its 50-day moving average for the second time in nearly three weeks.
Alphabet still harbors a 9.3% gain since its October breakout from a constructive flat base with a 1,006.39 entry.
Meanwhile, Intel (INTC), one of the four tech members of the Dow industrials, showed buying support at 50 as shares fell just 0.6% to 50.84 in quiet trade.
Plus, since Intel fell less than the S&P 500, expect to see a bump up in the RS line. This line compares a stock’s day-to-day performance with the large-cap benchmark.
Intel has recently staged solid profit growth, with earnings rising 21%, 4%, 22%, 22%, 26% and 37% vs. year-ago levels in the past six quarters. The semiconductor giant, eager to become a force in self-driving cars and other new markets, has also posted modest to high single-digit revenue growth for nine quarters in a row.
At this point, Intel shares are still well-extended in price after breaking out of a long saucer base at 36.80 back in mid-September. Watch for a potential new base to form or a fresh test of support at the 10-week moving average, visible only on a weekly chart.
The stock earns an enviable 95 Composite Rating on a scale of 1 to 99 at IBD Stock Checkup, topped only by Microchip Tech (MCHP) and STMicroelectronics (STM). Both of these names sport a 96 Composite. Cypress Semiconductor (CY), also in the semiconductor manufacturing industry group, holds a 95 ranking.
STMicroelectronics, one of the most exciting semiconductor firms based in Europe, dropped more than 1% on Monday, but volume shrank 45% below average. At 24.23, the stock lies just 4% below its 52-week peak of 25.30 and it’s now formed a narrow cup with handle.
Notice on a daily chart how the stock has eased lightly in price over the past five sessions. Volume was bone dry. That’s ideal action in a short handle.
The buy point in this first-stage base is 24.78, 10 cents above the handle’s high.
Earnings at the diversified maker of controllers, smartcards and power transistors powered 250% higher to 98 cents a share on a 20% jump in sales to $8.35 billion. The Street sees earnings rising 33% to $1.30 a share this year and up an additional 14% in 2019.