Blue Chips Hit After Fed Hikes Rates, AI Stocks Firm; SMTC, LITE, DXCM In Focus

0:00There's a lot of hype and a lot of good news already priced into the marketplace today.

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0:42Ken Shreve:Good afternoon, everyone, and welcome to Stock Market Today for Wednesday, September 16th. It's Alyssa Coram along with Ken Shreve here, and we now have the Fed decision. The first rate hike in a couple of years, and we're here to break down the market's reaction and a couple of bright spots. What do you have for us, Ken? Yeah, another volatile kind of whipsaw day for the market. Most of the selling alley in blue chips. The Dow took a pretty good hit today. We'll get into all of that, but AI stocks actually held up pretty well. Not too much selling in the NASDAQ. Let's take a look at Semtech in the chip space, SMTC.

1:22This is an AI infrastructure stock. Also, Lumentum, L-I-T-E, another AI infrastructure stock holding up pretty well here. And then a diabetes stock, still seeing a lot of healthcare stocks acting well here in the medical space, Dexcom, D-X-C-M. There you have it.

1:43Ken Shreve:Okay, we'll get to those stocks. But first, a closer look at the major indexes. Let's inspect it, Ken. Give our assessment of the market action on this Fed reaction day. I'm going to go to the intraday chart of the NASDAQ composite. Guess when the Fed news hits. Typical Fed day, it looks like. Exactly. There you go. We knew it was going to be volatile. So here it is. the Nasdaq closing essentially flat on the day after a little morning gap up, but we did close off of session lows by the end of the day as investors continued to digest the news of the rate hike. And zooming out, here's a look at the daily chart.

2:24Ken Shreve:So an outside day, downside reversal, still hanging on right at some key levels. Let's also take a look at the S &P 500 down a little less and a half a percent, also closing off lows. But I would say a notable move lower here around key levels. The Dow blue chips, as you mentioned in the headline today, can definitely taking a big hit, falling below some levels that we pointed out in yesterday's Stock Market Today show. So the Dow down 1.2 % on the day, the hardest hit of the major indexes here. And then taking a look at small caps, the Russell, down about a half a percent. But let's start with the tech-heavy index, the NASDAQ.

3:11Ken Shreve:Ken, your thoughts on how the day turned out? Well, yeah, not a great-looking day for the NASDAQ. I mean, the percentage decline wasn't too bad. It was basically flat on the day. It did give back a pretty nice percentage decline from earlier in the day. So, you know, still sticky around that 26 ,000 level. Volume picked up the pace quite a bit. You know, that's probably the biggest volume for a down day that we've seen in quite some time. I mean, you're going to have to go back all the way till June, it looks like, to see a down session with volume like that. We didn't give up hardly any ground, though.

3:59So we're going to probably, well, we're definitely going to avoid a distribution day because it was only, you know, it was down less than one-tenth of one percent. So, but quite a bit of volatility in the NASDAQ. And, you know, our news editor, Ed Carson, is in the office today and was talking about, you know, kind of interesting to see chip stocks holding up pretty well today. SMH, I think, was positive on the day. That gave back some gains along with the NASDAQ, but eked out a half a percent gain. And AI stocks, when you look in the NASDAQ 100, AI stocks generally turned in decent sessions. We're going to look at two of them in just a little bit.

4:46But there was some green on the NASDAQ today, so that's a positive. All right.

4:55Ken Shreve:Well, let's take a look at the S &P 500. And I'd also like to get your thoughts on the Fed news. Well, I think it was certainly the most widely telegraphed rate increase in recent memory. Certainly, the bond market had been flagging it. And I think, like I mentioned on IBD Live this morning, I think either Kevin Warsh was either going to raise interest rates or if he kind of kept rates where they were and unchanged, he probably not only would have dealt with a tremendous stock market sell-off, but probably another bond market sell-off that would have lifted rates through the roof again. So he kind of painted himself into a corner with the whole Fed credibility issue.

5:51And he raised rates by a quarter point. And also, you know, kind of I think the market is also expecting we're going to get another quarter point hike before the end of the year, probably in December. So the market is confident about that. And I think the, you know, we got evidence that committee members are leaning towards that as well. So the CME FedWatch tool that people are increasingly using these days, that has been accurate. And that is also that seems to be flagging what the Fed insinuated today, that there's probably going to be another rate hike as the Fed combats this inflation and trying to get inflation down to that 2 percent level again.

6:41And it's quite a fight that the inflation has been that the Fed has been fighting here. And, you know, it could take a while for inflation to get back down to 2 percent. So, you know, I think it was mostly as expected. I think it was, you know, a hawkish tone from Warsh. I think that was expected. Market wants to hear him talking tough against inflation. And, you know, I think we're probably more than likely going to get another rate hike before the end of the year. The 10-year Treasury yield went all the way down to 4.94 at one point today. Ended up closing above 5 % today. So to see the NASDAQ pretty much flat on the day, not surprising to see small caps lagging with the 10-year yield restrengthening near the close.

7:40So, you know, 10-year yield back above 5%, not a great sign for the market, but not surprising considering the feds, you know, in this rate hike, you know, rate hike. Yeah, they're going to be raising rates. Yeah.

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8:41Ken Shreve:It could mean more weakness to come, but we did just recently, you know, in July, have a test of that level, and we were able to regain it. So all is not lost at this moment, but it is a weakening picture here, at least in the short term. It is, but we want to pay attention to 7 ,500 because this is a round number, and it was a nice close off lows for the S &P 500 today. And this is kind of retesting that prior breakout area. I mean, that 7500 level is where the S &P 500 broke out at the end of July, kind of early August. So it's just kind of coming down and retesting that prior breakout area.

9:26So it closed nicely off lows as it came down and touched 7 ,500 today. So this is a pretty good support level. So if the S &P 500 does undercut the low from today and if it undercuts tomorrow, that could unleash another downdraft for the S &P. So that is a possibility. You know, we've been talking about this market that is, you know, under some distribution here. So when we see, you know, distribution, sometimes it can, you know, unleash even more institutional selling. So we're in the early stages of a pullback that could pick up some more steam here. So we need to be on the lookout. But what we know now is that the S &P 500 is making an initial stand here at 7 ,500.

10:21You know, we're seeing, you know, a lot of yellow flags out there and it's possible we could give up 7 ,500. We'll just see. We'll see how we finish out how we finish out the week. But, you know, a lot of weakness in financials today. That was a bit concerning. That was a big reason why the you know, why the why the Dow lagged and why the a lot of why the S &P, you know, lagged, lagged as well. So you can see that XLF had a really tough day today.

10:51Ken Shreve:It sure did, down 1.6%. And you mentioned blue chips. So we'll go to DIA and we'll circle back on the technical action there for the Dow. We mentioned$52 ,000, a key level. You also have this marked low at$51 ,542. Looks like we closed basically right there. So testing that marked low. Yeah. So, you know, here again, the Dow is, you know, kind of, you know, this has been a pretty sharp pullback off of that$54 ,700 high. So pretty extreme selling in the blue chip index, which is going through some of the worst percentage decliners. Ironically, IBM was at last check the worst percentage decliner in the Dow today.

11:42But Goldman Sachs, we want to look at a chart of Goldman Sachs. We talk about financials getting hit today. Goldman Sachs really looking weak here. Yeah, Goldman Sachs, this is a break below the 200-day moving average. So this is obviously a heavyweight investment bank here. So to see Goldman going below the 200-day line, this is a bit concerning for people watching the financials. Boeing, another big drop or a big loser in the Dow today. Also going through some long-term support. More problems with the 737 MAX. Don't have the specifics, but they came out with a press release. More production delays of some sort that really hurt the stock today.

12:34And American Express, another big blue chip stock in the Dow. That was also under, took a big hit down close to 4%. So you can see, you know, lots of damage in the blue chip space and small caps, you know, were hit right along with the Dow. The small caps and the Dow were the two worst performing indexes today.

12:56Ken Shreve:Okay. Let's also just take a quick check on RSP. This one undercutting the lows from a couple days ago, still below the 50-day moving average. Today's decline down eight-tenths of a percent, so outpacing the decline of the S &P 500 down less than a half percent, Ken. Yeah, yeah. So this is just telling you that breadth was, yeah, even worse than how the S &P 500 performed today. So not great breadth and not just what you would expect on a on a weekday for the market. Yeah. Okay. Well, let's get to some interesting movers in today's session, starting with SMTC, a really nice gain for this stock today, which we will take a look at momentarily can stand out in, oh, I don't know why.

13:56Ken Shreve:Right. There it is. Work with me here. Work with me. Up 11 % today. And this is in the chip group, same group as NVIDIA. I really like how it's rounding out the right side of the base, Ken. Yeah, it is really, it is pretty difficult to find semiconductor, any semiconductor stocks at this point that are up near all-time highs. You know, there are literally hundreds of chip stocks in our database. We've got basically three industry groups. We've got chip makers, we've got chip designers, and we've got chip equipment stocks. So we've got three different industry groups. It's a very, very big sector.

14:42And I don't even know if I could come up with five chip stocks out of hundreds in our database that are up near all-time highs at this point because the whole sector has been just obliterated. The sell-off has been just extreme, and a lot of these stocks are still 20%, 30 % off their highs. Semtech is up near all-time highs, and I don't know that I can explain why it is up near all-time highs, but you want to pay attention to a stock that is showing incredible relative strength. You know, I know it's an AI infrastructure stock. I know that the fundamentals are extraordinary at Semtech. It's a California-based company, just a little bit north of Los Angeles where we are in Camarillo.

15:33But let's take a look at the weekly chart here. Sure. And it's, you know, a stock that is, I mean, this is a really nice looking base forming here with a relative strength line up near highs. Went through recent headlines. You know, a lot of a lot of nice earnings reports recently from from Semtech has worked its way higher. So a stock that clearly is under accumulation here. They do optical chips that basically link AI processors inside basically data center racks. So it's an AI infrastructure stock. You can see the annual earnings here are very, very strong. and lots of green down in the quarterly earnings and revenue block down at the bottom here.

16:22So I just want to bring up Semtech because if you follow chip stocks, this is a name that we want to be paying attention to. It's no small potatoes here. It's a$14 billion market cap company. So it's a mid-cap stock, very liquid, excellent fund sponsorship. So probably do a little more digging here to find out why it's trading so well, because there are a lot of other chip stocks with great growth prospects in the AI space, including NVIDIA and Broadcom. And I can come up with a lot of others that are growing very rapidly, but that have been really ripped apart and, you know, are far off, far off 52 week highs and have really been, you know, taken apart by sellers.

17:09But Semtech is showing a lot of relative strength here, so looking really strong. So I just want to point out Semtech and give it a hat tip for showing a lot of relative strength in a time when chip stocks are really, really struggling here.

17:24Ken Shreve:If your organization isn't managing its data with Everpure, then it's likely scattered all over the place. My lord, for three days have I ridden to bring thee warning. The records thy great AI machine requires are strewn across five kingdoms. Yeah. The Everpure data management platform unifies data so you can always find it. No messenger needed. No more running around. Get out of the data dark ages with Everpure, a new era in data management. Yeah. Let's go to another AI name with a high ATR SimTech. Tech, it is volatile, ATR of over 8%. Let's go to Lamentum, 7 % ATR, up almost 10 % on the day, rebounding off of the 50-day line that's been a support level for the stock in recent months.

18:18Ken Shreve:You know, going back a couple sessions, Ken, this was trying to get back above that round number of 1 ,000 got rejected there. With the chop, with the personality of this stock, perhaps pullback buys or these types of rebounds closer to a moving average might suit some investors out there better than waiting for it to get back into new high territory. But one that we're watching, no doubt, with a compelling fundamental story here? Yeah, kind of a similar situation to Semtech because this one is really showing a lot of relative strength. And even today, it closed up near its high. Volume picked up the pace.

19:04It was a nice higher volume gain. Volume was above average, picked up the pace from yesterday. Again, closed up near its session high, and it's back above all of its moving averages again. And, you know, Lumentum is one of these laser optical companies. They basically use light to transmit data between servers inside of data centers. So just, you know, kind of optical transceivers, you know, play and, you know, just a great stock inside the telecom equipment group. And similar to Semtech in that it's back up near all-time highs and a bit of an anomaly in the market here. So clearly, you know, one of the leaders in the optical space.

19:56And this is just a very fast-growing name with great growth prospects right along with Lomentum. But, you know, you look at other names in the telecom equipment group, they're just not showing nearly the relative strength that Lumentum is, even though they're showing, you know, pretty good growth prospects as well. So for whatever reason, Lumentum is showing a lot of relative strength, just like Semtech is here. So I think, you know, you want to keep an eye on Lumentum, even though the NASDAQ is looking a little vulnerable here and most stocks are going to follow the market's trend. I think Semtech and Lumentum are showing exceptional strength in the tech sector here.

20:40So, you know, I think there are risky, risky buys here, again, just because, you know, tech stocks in general look a little shaky here. But Lumentum is, you know, a really strong stock in its industry group, right along with Semtech. And just respecting the strength that both stocks are showing in this market right now. Great.

21:04Ken Shreve:Let's go to Dexcom, DXCM, a name out of the medical sector, in a nice uptrend, Ken, for the last couple of months, finding support exactly where we'd like to see it at the 50-day line. And up on the day today, up on a down day, by 1%. Yeah, steady, steady grower in the healthcare space, continuous glucose monitoring systems for diabetics and really have been seeing a lot of diabetes stocks outperforming lately, you know, as the tech trade has gotten a little bit shaky here. And again, the NASDAQ, you know, struggling to hold on to support here. You've seen some defensive stocks in the health care space coming, you know, strengthening and seeing some money flow here.

21:56So I think it's an area of the market you want to be paying attention to here because healthcare names like Dexcom tend to do well when the market gets defensive here. So this is just a great test of the 50-day line after an earnings breakout from a consolidation. And yeah, there's the weekly chart here. Not a great relative strength has improved for Dexcom, but you can see just a look at the weekly chart here. It hasn't been a stock that's been in a strong uptrend. It's just been kind of moving sideways for a long period of time, but kind of been trending higher lately and a recent breakout and, you know, kind of finding some support here.

22:39So might be the right. Yeah, a little bit of a turnaround. around. And again, if techs are going to be under some pressure here and if the NASDAQ is going to be coming into a little bit of a pullback and consolidation period and healthcare is going to outperform for a little bit, Dexcom might be an area to check out. So again, seeing some healthcare outperformance here, good support for Dexcom firming up at the 10-week line. And I think this is a name to consider here. Pretty good fundamentals, good composite rating. So it measures up a lot of different factors that we like to check here. So I think it's one worth checking out, Dexcom.

23:26Ken Shreve:All right. Thanks for that, Ken. Okay. Good show. We appreciate your take as always, Ken. Okay. My pleasure. Thank you so much. All right. See you next time. Thanks everyone for tuning in. That's it from us for today. We will be back with more tomorrow morning on IBD Live. Investors.com slash IBD Live for all the details. We'll see you there. And then we'll also see you right back here tomorrow after the close.

24:08Ken Shreve:this show is for informational and educational purposes only and nothing should be construed as a recommendation to buy hold or sell any securities any securities and investment strategies discussed may not be suitable for all investors make sure to consider consulting with your financial advisor before making investment decisions. You're either all in on this model, or maybe you're building with another. You're either speed, or is it security? Or you're AWS AI. Don't pick a side, pick them all. AWS AI is how.