Nasdaq Holds Strong Despite Chip Sell-Off: AMAT, ONTO, USB In Focus

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0:36Ken Shreve:Good afternoon, everyone. Welcome to Stock Market Today for Wednesday, July 1st. It's Alyssa Coram here. And a pretty rough day for the high-flying chip sector, but the NASDAQ was able to hold strong to kick off the month. And joining me now to discuss the action in today's session is my colleague, Ken Shreve. Ken, always great to see you. Good to see you too, Allie. Yeah, we've got to close near lows for the NASDAQ composite, but not much volume behind the decline. Found three stocks to talk about, two in the chip sector. Let's talk about applied materials and on to innovation. And then bank stocks doing well today as that yield curve steepens.

1:19Let's take a look at USB, U.S. Bancorp. Yeah.

1:25Ken Shreve:Sounds like a plan. We'll do that. But first, let's check out the major indexes. The Nasdaq composite down almost 0.7 % on the day. Meanwhile, the S &P 500 down on the day as well, but only 0.2%. The Dow essentially flat, just a fraction lower on the day. Ken, it looks like this chart is lagging behind just a little bit there. And then we'll go to the Russell 2000 reversing lower on the day, down about 0.3 % or so, but still in a very steady uptrend. But it was really the chip sector that was the drag today. Ken, your thoughts on where things stand with the NASDAQ composite? Yeah, I mean, it was one of those days when you looked inside the IBD-50 and you look inside the market surge growth 250.

2:18and actually it wasn't a bad day at all for FFTY. We looked at that on IBD Live earlier in the day and it was down pretty sharply and it ended up down 2.5 % but basically stopped right at the 10-day moving average. But you do have a lot of chip stocks in the IBD 50 ETF and those were some of the hardest hit groups in the market today. SMH took a hit, stopped right at the 21-day moving average smh down more than five percent our hardest one of the hardest hit industry groups today was that chip equipment group those were some of the hardest hit stocks in in pre-market you know the lamb lamb research and applied materials we'll we'll look at amat in just a little bit but it was kind of a you know the the chip stocks it was not not all bad i mean the chip designer group, the Fabless group, that was down less than 2 % today.

3:18So the chip equipment stocks were hardest hit. The chip maker group, chip makers were down 5%. So yeah, that was where most of the weakness was in the NASDAQ. But for the composite, it was able to hold above its short-term moving averages, it looks like today. And looking at the glass half full here, it was able to hold above 26 ,000 as well. And when you look at the volume today, you know, it looks like we're going to come in maybe just a little bit below what we saw on Tuesday. So we didn't see a whole lot of volume behind the selling today. So we'll take that. It looks to be pretty close. We're not sure if we're going to come in slightly higher than yesterday or maybe just a little bit below.

4:11Either way, there wasn't a whole lot of volume behind the selling. And, you know, breadth was slightly positive today on the NASDAQ. So we'll take that as well. But, you know, and then with the selling in the chip space, you know, we did not see any sell signals yet, even though we saw a lot of chip names down 6%, 7%, 8%. The percentage declines were pretty tough, But, you know, still a lot of big leaders holding above their, you know, holding above their 10-day lines, holding above their 21-day lines. So not seeing any sell signals yet. Some pretty stiff losses. But, you know, we see SMH here still holding that 21-day line.

4:56So tough, tough day. But, you know, hanging in there.

5:01Ken Shreve:Yeah. Fighting the good fight. And I think we definitely would ideally love to see it hold that reversal load from earlier in the week, not only for SMH, but also for the NASDAQ. The day to kick off the week and then the end of last week as well above 25 ,000. Those are some key lows. We don't want to start making new lows. We want to be making higher lows. So that is something that we're going to be watching very closely in the days ahead. But to your point, Ken, if the weakness that we're seeing is in some of these high-flying areas that need to cool off, I mean, that could be a good thing in just seeing the money rotating elsewhere versus broad-based selling.

5:48Yeah, exactly. And there are pretty key support levels here to watch on the NASDAQ that you just outlined. outlined. And again, that 50-day moving average initially held, and it did not hold recently. But again, that two-day rally for the NASDAQ was fairly powerful, and it's holding so far. So we're holding just above it now. And just disconcerting to see the selling in chips today, but at least there wasn't a big wave of selling in the NASDAQ today. It was encouraging to see not much volume. Again, you noted this morning we're in kind of a pre-holiday week. We're probably not going to see a whole lot of volume in the market this week and probably not a whole lot of volume in the market tomorrow ahead of the 4th of July weekend.

6:44So, you know, We'll see where we're at tomorrow, but fairly modest declines today.

6:53Ken Shreve:Yeah, and here's a look at the S &P, Ken. Your thoughts? This was not a bad day as well. I mean, this index was actually flat and had turned higher not that long ago. It got kind of pulled down late with the NASDAQ, but closed off lows. And yeah, a little bit of buying late in the day there. So also above its short-term moving averages here. And breadth was also positive on the S &P 500 as well. So we'll take that as well. And yeah, the equal weighted ETF closed off highs. But yeah, good breadth on the S &P 500 today as well. And lower volume on the S &P. Okay, good stuff. And as I mentioned, the uptrend for small caps still intact.

7:44Ken Shreve:We did have that downside reversal off highs and a couple of other times that we did see that that did lead to some shorter term pullbacks. But nonetheless, still well above that eight EMA, the 21 EMA as well, those shorter term moving averages that we really like to see. And then over in the blue chip land, we're continuing to see a strong uptrend here as well with support above those short-term moving averages, Ken. Yeah, I just wanted to call out small caps real quick. Small caps, you know, we're down today. We did have a pretty big move in that 10-year treasury yield today. that 10-year yield, I think, was up six basis points to 4.48, 4.47.

8:32It did close off highs, but it did gap above its 50-day moving average. So small caps, a little bit susceptible to that rise in the 10-year yield. And I was talking to my colleague, Dave Chung, who sits right next to me in the office here. It was very, very peculiar action in the Dow today to see it end basically flat on the day. Yeah, it was basically flat on the day. And, Ali, it was pretty incredible because I'm just going to go through to see the Dow flat today. And I went through, you know, there were so many explosive movers to the upside and to the downside in the blue chip index today to see the index end flat.

9:17Ken Shreve:They canceled out. Yeah. I mean, it was just in the 25 years that I've been in the market. I'm trying to remember a time when the Dow ended flat. And I see Nike up 4.9%. I see CRM up 4.2%. I see Microsoft up 3%. I see American Express up almost 3%. I see UNH up 2.6%. I see Visa up 2.4 or 2.3%. JPM up more than 2%. IBM up almost 2%. And then on the downside, if that's not enough, all these big gainers, on the downside, you know, we've got Walmart that gets absolutely creamed today. Look at Walmart down 4%. And then Caterpillar is down almost 7 % today. And all these gainers and decliners. And, oh, and don't forget Merck, which was down more than 2 % today.

10:10And all this, and you've got the Dow flat on the day. I mean, come on. This is unbelievable. I mean, you've got explosive gainers to the upside and all these stocks getting creamed on the downside and the Dow is unchanged. Okay.

10:26Ken Shreve:That is very interesting. I know. It was just really – I was just looking at all these big gainers and all these big stocks getting creamed and we've got the Dow just flat on the day. Well, you know, that's what makes what we do so fun, Ken, is there's never a dull day, right? Never a dull day. There's always something interesting going on underneath the hood. Isn't that funny, though? Yeah, just lots of big movers up and lots of big movers down. And in the end, just inching higher. We'll take it, right? We'll take it. Exactly. Okay. So you mentioned Microsoft, you know, not a leading software name, but we did want to point out the strength in the software sector today.

11:10Ken Shreve:So here's a look at the IGV up 3%. What a roller coaster ride this sector has been on. So trying to get going here again today, this was a notable area of rotation, perhaps out of chips into software, Ken. And then looking at something a little bit more focused here, you do have that cybersecurity area of interest, the CIBR ETF, as well as HAC. Hi, this is Alex Osula, host of the WSJ's What's News podcast. We bring you the biggest news of the day, from business and finance to global and political developments that move markets. If you're looking for more insights and tools to understand the latest headlines, consider becoming a subscriber to The Wall Street Journal.

11:57Ken Shreve:Visit subscribe.wsj.com slash what's news to subscribe now. These two both got play on IEBD Live this morning. So I know you were saying on the show that your only software exposure or sorry, your only technology exposure right now is in software in something like a data dog. So seeing seeing that rotation take place in your portfolio within the broader technology umbrella. Yeah, yeah. Well, software stocks got off on a good start, got off on a strong footing this morning because Guggenheim upgraded Salesforce and ServiceNow. Both of those stocks were upgraded to buy by Guggenheim. They were up, you know, 4 % in the early going and managed to hold pretty decent gains throughout the game, throughout the day.

12:50And Guggenheim upgraded both, basically citing valuation. And so, yeah, that's what started the software stocks off on solid ground. And they ended up just having good gains all day. And yeah, the security software stocks, that was another strong performing group all day as they continue to outperform here. So a lot of the individual stocks in this group all performed very well today.

13:21Ken Shreve:Yes, indeed. All right. Well, let's shift gears and analyze the action in that chip equipment group by looking at applied materials. This has been such a winner this year, Ken. And you can see just the rate of ascent really picked up in that late May, early June timeframe. So to see a decline today of 10%, of course, disappointing for the bulls here. But putting that into perspective, I mean, what a run this stock has had. I mean, it's doubled in such a quick clip. Yeah, yeah. And this is just, you know, again, a 10 percent decline that I just want to put into perspective, which you which you just did.

14:06I mean, this is, again, a big, big market winner. And out of the three industry groups that we track in the chip sector, this was, again, the worst performer. The chip equipment groups are the chip equipment stocks are the best performers because these are the guys that supply the equipment to all the fast-growing memory and storage stocks that have been the big, big winners. So they've been growing because of the strong fundamentals and the needs and equipment needs for all the memory and storage stocks. So applied materials, you know, heavy volume came into this stock, what was it, four days ago, there were heavy volume sellers that came in.

14:46And, you know, it came down and didn't even touch the 10-day moving average. And, you know, volume was heavy again today. It wasn't quite double average. What was that, 70, almost 80 % above average today. And it came down to its 10-day. It looks like it closed right at maybe just a little bit below its 10-day moving average. So, you know, you've had some big sellers in the stock, you know, two days out of the past four. But, you know, it's just still sitting right at its short-term support level. So this is not a stock that I would say is in trouble by any means. I mean, leaders, big leaders like this, it's perfectly normal for them to come down and test their 21-day line.

15:28And for applied materials, that still can go down below the 600 level to test the 21-day line. That would be perfectly normal. So we'll see how applied materials consolidates here. The fundamental picture is still very much intact here. And even after two heavy volume declines in the past four trading sessions, you can see the accumulation distribution rating is still A+. Now, this rating does cover three months of trading, but this is a stock that has been in such a major accumulation phase, helped by so many above average volume or higher volume gains. It's going to really take a lot of selling to knock this accumulation distribution rating lower.

16:17But if we should see higher volume declines, you know, continue in this stock, we'll see that that accumulation distribution rating start to start to move lower, you know. And but I would say that the pullback so far, you know, holding above the 10 day line looks completely normal. And, you know, maybe it does come down to the 21 day line and test that support level. But again, I think that would be a question. Yeah, for leading stocks and top performers like Applied Materials, during a normal pullback, the 21-day line is a perfectly normal support level to test. So we'll see. But this is – Chip Equipment Group has been one of the strongest performers.

17:01It's been a top group over the past six months. And you can see how many weekly gains do we have up in a row here, six or seven. So it's probably due for a pullback. And you can see the weekly gain, you know, where it is trading so far this week. It's given back a lot of this weekly gain. So it probably is ready to take a breather here, as are a lot of other, you know, chip stocks. So we'll see how the pullback, you know, takes shape here.

17:28Ken Shreve:Yeah, clearing an upper channel line, just that rate of ascent getting a little steeper there. So, yeah, maybe it does pause here for a bit. Let those moving averages catch up or form some sort of base. That would be good to see. I mean, this is a company can, you look at the ratings here, pretty stacked. 99 composite. Of course, it's got the relative strength on lock. But even the earning stability, earning stability of six. I mean, that's pretty good to see. So it has a lot to like here. So investors who maybe missed this one, arguably the leader in this number one group base would be a good thing.

18:15Yeah. And technicals can help you, you know, can help you, you know, help you when to take profits in the stocks here. This is a pretty good upper channel line to tell you that applied materials are probably overheating a little bit here. And, you know, maybe not a bad idea if you've got a good gain in this stock to, you know, take a little money off the table here and trim some of the gains.

18:43Ken Shreve:Mm-hmm. All right. This episode is brought to you by State Farm. Listening to this podcast instead of doom scrolling? Smart move. Another smart move? Getting help from one of State Farm's 19 ,000 local agents when you choose to bundle home and auto. bundling just another way to save with the personal price plan prices are based on rating plans that vary by state coverage options are selected by the customer availability amount of discounts and savings and eligibility vary by state thanks so much okay next on the list let's go on to on to innovation yeah also in the semiconductor equipment group it's up eight and a half percent for the weekend a couple of weeks after a breakout so what's looking interesting to you here yeah this is a slightly different look than applied uh applied materials it's in the same same industry group and is kind of a similar similar uh company uh similar business to applied materials.

19:51This is a process control inspection systems. They basically identify defects for chip makers that, you know, along the chip making process, they help them identify defects in their chip. So it's basically a chip testing equipment. They make lithography systems. I think their main competitor is KLA, which is another big mega cap chip equipment company. But on to innovation, it's a big, big company, not nearly as big as applied materials or KLA, but the fundamentals are exceptional here as well. And great ratings here, accumulation distribution rating of A plus. On to innovation, just recently broke out of a broke out of a base And you can see it is close to kind of retesting the top of this base.

20:50It really is not retesting that 316 or 318 pivot. But it's kind of coming down and kind of testing the top of that little area here. And I think it looks like the relative strength line is still up near highs here. and just kind of pulling back gently. I like the low volume pullback. Still a stock under accumulation here, again, with that accumulation distribution rating of A+. So I like the pullback basically down to the 350 level because after this stock broke out, it basically just kind of consolidated right below that 350 level. So here it is just kind of pulling back right at that 350 level.

21:39So kind of like the look of it right here as it kind of holds support at 350. If we go to the weekly chart, just see where it has come from and what it looks like. Yeah, so it's just a nice little breakout from a base and just holding tight near highs here. And really like the fundamentals, you can see it kind of has the look of a turnaround story. You can see earnings have declined in recent quarters. But in the second quarter, when they are set to report earnings, you can see that the turnaround is really starting to kick into gear here. So kind of like stories like this, top line growth is really starting to pick up the pace as well as the earnings growth, too.

22:25So this one's on my radar. Again, number one ranked group in the market. Chips are still looking good here. Lots of selling in the group today, but on to innovation, made it through the selling okay. And let's go back to the daily chart and just see. Sure. Yeah, I mean, it was down, you know, down 7%, but two strong up days in a row. You know, 7 % decline doesn't look good on the surface, but after two straight up days, you know, that 7 % decline didn't look too bad at all. So good one for the watch list here.

23:02Ken Shreve:Yeah, we'll keep it on the watch list. And then we'll shift gears and go over to the financial sector and U.S. Bancorp. Nice breakout today. Shares up 2.6%, getting above the 61 level. A little digestion over the last couple of trading days, clearing that as well. Yeah, banks are liking that steepening yield curve. The yields at the long end are nicely higher than the short end, and banks like to borrow at the short end and lend at the long end. So banks are outperforming, and U.S. Bancorp, well, banks outperformed today. Good day for the bank stocks. U.S. Bank Corp had a nice breakout today, and this one is still in a buy zone.

23:53You're going to see a lot of lagging relative strength lines in the regional bank group. So normally we like to see relative strength lines shooting into new high ground when a stock breaks out. But probably not going to see a whole lot of that with these bank stocks that have been just kind of slowly creeping up and breaking out. But I like the look of this breakout, and this is right at a pivot here. You can see U.S. Bancorp has just been kind of moving sideways. But I think this steepening yield curve is working in the bank's favor, and they could be ready to move here. I think USB looks good here in the early stages of breaking out.

24:34We have a regional banking ETF on leaderboard that had a wonderful day today, KRE. We don't have a big, huge gain in KRE, but really, really pleased with the recent breakout here. We added this on the recent breakout, and KRE had a really nice day of outperformance today, up almost 2 % across that 75 level. So nice to see that outperformance in the banks today. So all the selling in the semiconductor stocks and definitely saw some money rotating into the financial sector today.

25:10Ken Shreve:Yeah, absolutely. Seeing that strength elsewhere. Thanks so much for highlighting that today, Ken. We appreciate it. You betcha. All right. Thanks so much, everyone, for tuning in. And thanks again, Ken, for the astute analysis. As always, we'll have Ken back on. Thank you, the co-host seat tomorrow. and that is it from us for today. We do have our Wednesday podcast. Ed Carson joins Justin Nielsen for an insightful discussion today live at 5 p.m. Eastern. We call him Econ Ed for a reason. He is staying on top of all things Fed. Ed on the Fed, right? So check that out today on the podcast and yeah, 5 p.m.

25:59Ken Shreve:Eastern live on YouTube. We'll see you there. And then the IBD Live crew has you covered starting 10 minutes before the opening bell tomorrow morning for the first 90 minutes of trade. We've got you covered with market analysis, portfolio management tips, and stocks to watch investors.com slash IBD Live for those details. We'll see you there. And then we'll also see you right back here tomorrow after the close to wrap up this shortened trading week. See you then.

26:55We'll see you next time. and business news ahead. If you're looking for more news and tools that you can use to help navigate the markets, consider becoming a subscriber to The Wall Street Journal.

27:04Ken Shreve:Visit subscribe.wsj.com slash takeontheweek to subscribe now.