Nasdaq Index: Tech Stocks Trigger Stock Market Reversal Today as Chips Sink

Chip Rally Dies, Stocks Reverse Hard

The S&P 500 is down 1.7% at the mid-session Tuesday. The Nasdaq Composite has dropped 3%. The Dow Jones Industrial Average is off 354 points, down 0.7%. The morning looked completely different. Crude oil fell nearly 5%. The Strait of Hormuz was reportedly improving. President Donald Trump said a deal with Iran could come within days. The market opened higher on all of it. Then semiconductor stocks rolled over and took everything with them.

The iShares Semiconductor ETF has plunged nearly 7%. That has erased Monday’s entire 6% recovery. The dip buyers from Monday are getting carried out Tuesday. This is the third straight session of violent moves in chips. Down 10% Friday. Up 6% Monday. Down 7% and counting Tuesday. The sector that carried the market for two years is now the sector destroying it.

The Dip Buyers Are Getting Trapped

Monday’s semiconductor bounce was supposed to be the reset. Micron Technology jumped 10%. The SOXX gained 6%. Traders called it confirmation that the artificial intelligence trade was still alive. Tuesday is proving them wrong. Micron is down nearly 8%. Broadcom has fallen 5%. Monday’s buyers are becoming Tuesday’s sellers. The pattern is forming in real time. Every bounce in chip stocks is running into institutional accounts that want out.

Jay Hatfield, CEO of Infrastructure Capital Advisors, pointed to SpaceX. The IPO is expected to start trading Friday at a valuation near $1.75 trillion. “I think everybody’s a little nervous,” Hatfield said. Positioning ahead of the largest IPO on record is pulling capital out of existing positions. Friday’s selloff may have been partly driven by the same dynamic. OpenAI filed confidentially for its own initial public offering Monday night. Two massive artificial intelligence offerings in the same week. That is capital getting reserved, not deployed.

Defensive Sectors Are Catching the Rotation

The selling is not everywhere. Consumer staples are up 1.5%. Real estate has climbed 2%. Utilities have added 1.2%. Health care is up nearly 1%. Financials are posting modest gains. Materials are edging higher on lower energy input costs. The money leaving technology is going somewhere. It is going into sectors that pay dividends and do not depend on artificial intelligence spending projections.

Technology is down 4.5%. The worst sector by a wide margin. Energy has fallen 2.3% even with crude oil down sharply. Communication services, consumer discretionary, and industrials are all trading lower. The rotation out of growth and into defense is happening in real time. Better-than-expected existing home sales data is giving real estate an extra push. Parts of the economy are still holding up. The market is starting to pay attention to the parts that do not need artificial intelligence to grow.

Oil Dropped but the Market Does Not Care

West Texas Intermediate crude oil futures have fallen nearly 5% Tuesday. Prices dropped below $90 a barrel to around $86. U.S. Energy Secretary Chris Wright said vessel traffic through the Strait of Hormuz was “rising very meaningfully.” President Donald Trump said a deal with Iran could come in “two or three days” with the Strait reopening immediately.

That should have been a green light for equities. Lower crude oil eases inflation pressure. Gives the Federal Reserve more room. Takes the energy cost squeeze off consumers and businesses. The market rallied on it at the open. Then semiconductor stocks broke and none of the oil news mattered. A 5% drop in crude oil cannot save a session where the Nasdaq is down 3%. That tells you exactly where the power sits right now. Chips run the market. When chips break, nothing else can hold it.

Daily S&P 500 Index (SPX) Technical Analysis

The benchmark S&P 500 Index (SPX) is sharply lower at the mid-session on Tuesday after being rejected at a key short-term retracement zone earlier in the session. The subsequent sell-off drove the index through the main bottom at 7333.68, turning the main trend to down.

If the downside momentum continues then look for a test of the 50-day moving average at 7193.17. We could see some technical buying on the first test of this indicator. If buyers can’t stop the selling at the 50-day MA then look out to the downside. Traders will then target 50% of the 6316.91 to 7620.90 rally at 6968.90. This is just in front of the 200-day MA at 6867.92.

The only move that will shift momentum back to the upside will be a recovery of the short-term trailing 50% level, currently at 7455.05.

Daily Nasdaq Composite (IXIC) Technical Analysis

The tech-driven Nasdaq Composite is now in a downtrend, according to the daily swing chart, after breaking the last swing bottom at 25701.44.

The downside momentum created by the move has put the 50-day moving average at 24951.67 on the radar. We could see a technical bounce on the first test of this indicator, but if it fails then look for an acceleration to the downside with a major 50% level at 23940.23 the first target, followed by the 200-day moving average at 23367.31.

The tone will shift to bullish if the market reverses and overcomes the pivot at 26294.61. This pivot will move lower with each new intraday low, making it a trailing 50% level.

Daily Dow Jones Industrial Average (DJI) Technical Analysis

The Dow also changed trend on Tuesday with a break through 50687.17. Taking out 50314.54 will extend the sell-off with the next target a pivot at 50183.23. If this goes, the market should hit the 50-day MA at 49274.00. And if that fails, the target zone will be 48708.57 to 47949.78, a main bottom and 200-day MA, respectively. Inside that range is a major 50% level at 48357.59.

What to Watch

All three major indexes have changed trend to down at the mid-session Tuesday. The S&P 500 broke through 7333.68. The Nasdaq Composite broke 25701.44. The Dow broke 50687.17. Three trend changes in one session. The semiconductor selloff is now three days old with no sustained bounce holding. Monday’s recovery has been erased in full. Every dip buy in chip stocks has failed. The SpaceX IPO Friday is pulling institutional capital to the sideline. Crude oil dropped 5% and the market is still selling off. That removes the last bullish catalyst that was working this morning.

The way I see it, the 50-day moving averages are the next test across all three indexes. The S&P 500 at 7193.17. The Nasdaq Composite at 24951.67. The Dow at 49274.00. First tests of the 50-day usually produce a bounce. The question is whether any bounce holds or just creates another exit for trapped longs. The rotation into consumer staples, real estate, and utilities is the market telling you where the money is going. Until chip stocks find a floor that holds for more than one session, rallies are sells.

More Information in our Economic Calendar.