Big Tech Wrecks a Blue Chip Rally

Daily Market Comment

May 10, 2021

Big Tech Wrecks a Blue Chip Rally

It was a split market today that didn’t end well. Coming off a new record high last Friday, the DJIA rallied at the bell on strength in cyclical plays and briefly crossed 35,000 before erasing the gains to finish 34.94 points (-0.10%) lower at 34742.82 on -2% losses in Intel (INTC), Visa (V), Apple (AAPL) and Microsoft (MSFT). On the flip side, the NASDAQ stumbled out of the gate on selling in technology shares and dropped 350.38 points (-2.55%) to 13401.86, but found support at its 100-day moving average (MA). Semiconductors were hammered after a downgrade on Intel (INTC) and the Philadelphia Semiconductor Index (SOX) lost -4.66% and closed below its 100-day MA for the first time since May 2020. Shares of chip maker Qorvo (QRVO) tumbled -6.90%. Technology (XLK) was the weakest market sector down -2.50%, but found support at its 50-day MA. Communication Services (XLC) was also hit hard on downgrades of Alphabet (GOOGL) and Facebook (FB) by Citigroup. Defensive sectors Utilities (XLU), Consumer Staples (XLP) and REITs (XLRE) outperformed. Steel stocks were a pocket of strength led by Nucor (NUE). The big cap NASDAQ 100 was the worst performing index down -2.63%, while the small cap Russell 2000 fell -2.59%.

Breadth was negative with declining issues beating advancing issues 2:1 on the NYSE and 3.3:1 on the NASDAQ. Declining volume was 65% on the NYSE and 70% of the NASDAQ. The VIX spiked 2.97 (+17.80%) and finished at 19.66. Crude oil prices eased 0.09 (-0.14%) and the June contract closed at $64.81 a barrel. Gold prices rose 7.70 (+0.42%) and finished at $1839.00 an ounce. Bitcoin (BTC) ended the session at $56,400, down 6.57%.

The Dow Jones traded sharply higher in a broad based rally early today but the selling in big cap tech was too much for the blue chips the last hour of trading. However, the number of new 52-week highs on the NYSE hit 711 today, which is close to a record number, and the NYSE Advance/Decline line, a leading indicator of market direction, is coming off a new high from Friday. The rotation into cyclical and reopening stocks remains strong, but the overweighting of the big cap tech shares overpowered that move today. The drop in prices did catch the attention of nervous traders as the VIX jumped to its highest level since late March. Keep an eye on key moving average support levels tomorrow. If selling is subdued at the open we should see buyers come off the sidelines and pick up beaten down shares.

Earnings releases to watch for on Tuesday include: Array Technologies (ARRY), Electronic Arts (EA), Hanesbrands (HBI), Palantir Technologies (PLTR) and Unity Software (U).

Tuesday’s Market Moving Economic Calendar: Small Business Optimism Index and JOLTS.

By David L. Blake, CMT

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Market Recap - 05/10/2021

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 13401.86 -350.3 -2.55% 3.98%
DJ UTILITIES 919.93 10.03 1.1% 6.39%
DJ TRANSPORT 15929.46 -13.84 -0.09% 27.36%
DJ INDUSTRIALS 34742.82 -34.94 -0.1% 13.51%
NYSE COMPOSITE 16516.83 -73.61 -0.44% 13.71%
S & P 100 INDEX 1895.01 -24.27 -1.26% 10.14%
RUSSELL 2000 2212.7 -58.93 -2.59% 12.04%
S&P 500 4188.43 -44.17 -1.04% 11.51%
CBOE MKT VOLATILITY 19.66 2.97 17.8% -13.58%
AMEX COMPOSITE 3078.75 -26.73 -0.86% 30.4%
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