Tuesday looked fine until noon–12:04 p.m. New York time, to be precise. That turned out to be the high for the day–at 2674.62–up 0.62% from the Monday close. It looked like we might even get follow through on Monday’s huge bounce.
And then came the reversal. The index slipped steadily if unspectacularly until by 2:43 p.m. it was down 0.19% for the day.
And then the slip turned into a plunge; the S&P 500 finished at 2612.62, down 1.73% for the day. At that level we’ll start tomorrow, Wednesday, March 28, just 31 points from the low we set on February 8 at 2581.
But the real development of the day was the collapse of stocks in the technology sector. Tech stocks with negative stories such as Facebook (FB), Tesla (TSLA) or Nvidia (NVDA) got hit hardest, dropping 4.9%, 8.22%, and 7.76%, respectively. But nothing in the sector escaped. Netflix (NFLX) was down 6.14%, Amazon (AMZN) 3.78%, Alphabet (GOOG) 4.57%, Microsoft (MSFT) 4.60%, Autodesk (ADSK) 4.40%, Adobe (ADBE) 6.60%) and Apple (AAPL) 2.56%.
It’s that breakdown among the leaders of the technology sector that makes me believe that we’re going to test and then go below the February 8 lows.
You see back when the market set those lows, technology stalwarts such as Amazon and Microsoft supported the market. Sure they took a hit but they were last in and first out.
Take Amazon, for example. The stock didn’t dip until February 7. It then bottomed on February 9 at $1339.60. And then by February 14, Amazon shares had moved above the February 6 high of $1442.84 to set a new high of $1451.05.
That’s hardly a dip, let alone a correction. The 103.24 point drop from February 6 to February 9 is indeed a loss of 7.2%. But that loss lasted only a week. And for a stock that on February 6 was up 23.4% for 2018 to date, a 7.2% drop and then a recovery in a week was hardly enough to dent confidence in the stock, the sector, or the market. I’d argue, in fact, that the quick recovery in Amazon and other technology bellwethers confirmed the market’s belief that the late January/early February drop was going to be a very limited drop and that the market would then resume its course to higher highs.
All of which is why Tuesday’s intraday reversal in technology stocks is potentially so important. If we’re seeing the erosion of not just market leadership from the sector but also market faith in this leadership to bounce back quickly, then I think we’re looking at taking out the February 8 low and moving to something more like a full-fledged and longer lasting correction to the bull market.
At the least we’ve seen a further winnowing of the ranks of the leaders in the sector that have the ability to drag the market as a whole to new highs. Fundamental news from Facebook (the Cambridge Analytical data breach revelations), Tesla (a fatal crash in California) and Nvidia (a decision to suspend self-driving auto tests in the wake of the death of a pedestrian in Arizona) have removed those stocks from the ranks of potential market leaders. It sentiment and selling continues to push the rest of the group and the NASDAQ Composite as a whole toward the February 8 low (at 6777.16 on the NASDAQ Composite vs. 7008.81 on Tuesday), then I think the rest of the market will follow.