Trading Places with Tom Bowley

Internet And Semiconductors Are Among Today's Casualties

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I've been discussing warning signs for the past several weeks, even talking about that nasty (gulp!) cyclical bear market possibility. These are what I refer to as "storm clouds on the horizon." Well, it's starting to rain pretty hard, so make sure you have your stock market umbrella with you. We're not yet seeing the spinning rotation of the possible tornado, but the rain's getting so hard, you might not see it until it's over you.

Today, two key growth areas - internet ($DJUSNS) and semiconductors ($DJUSSC) - are losing very significant short-term price support:

$DJUSNS:

Can we recover here and move back through the level of the breakdown near 3525? If so, the bulls would be trying to make a statement. Failure, however, could lead to much larger losses as inflation takes its toll on larger cap growth names like Alphabet (GOOGL) and Facebook (FB).

$DJUSSC:

This is the critical chart, in my opinion. The RSI dips to 40, or just below, have coincided with major bottoms over the past year. We're testing that level again right now, while also testing gap support. The short-term bullish argument really takes a beating if the DJUSSC cannot hold onto this upcoming gap support zone. The PPO has seen a bearish centerline crossover, so further price weakness to clear gap support would support a further decline.

These two areas also represent a big part of the NASDAQ 100 ($NDX). Last week, the NDX closed beneath its 20-day EMA for the first time since April 2020:

This chart is going to be very important in order for us to differentiate between another short- to intermediate-term bottom - just like all the others - or perhaps something more significant. The 50-week SMA is near 14700 and channel support is close to 14500. If the NDX can hang onto this area of support, the longer-term bullish environment remains. However, if the NDX fails to hold here, I could see things turning much uglier and increasing volatility sending U.S. equities much lower - perhaps into cyclical bear market territory.

Inflation (and the market's reaction to it) is the primary fundamental that I'll be watching as we navigate the next few months.

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Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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