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Pullback Among Chip Makers Is Latest Reason to Doubt the Rally

MoneyBeat by Saumya Vaishampayan

Are semiconductor makers warning that the broader market’s recent pullback has more room to run?

The PHLX Semiconductor index, a 30-stock gauge that includes shares of chip maker Analog Devices Inc. and Qualcomm Inc., fell 1.2% to 634.90 on Wednesday.

Known by its ticker SOX, the index ended just below its 200-day moving average of 638.47 on Wednesday, according to FactSet. It has dropped 6.8% since April 27’s close, outpacing the 2.1% pullback in the S&P 500 in the same period.

If the semiconductor index continues to push below its 200-day moving average and investor sentiment remains jittery, major stock indexes could pull back further, said John Kosar, chief market strategist at Asbury Research.

Investors have shown little confidence in the stock market rally of the past two-and-a-half months. As the grind higher has stalled the past three weeks, the struggles of semiconductor companies are the latest sign of trouble in tech land and the broader markets.

Often semiconductors and tech broadly lead a rally and their strength is viewed as a sign of a healthy market.

“When the market is doing well, investors want to be on the faster horses” like semiconductor shares, said Mr. Kosar. “If the SOX is doing well and outperforming, it tells me there’s good investor appetite out there to take risk,” he added.

That’s not the case right now. Tech companies in the S&P 500 lost 6.7% in the past three weeks, and last week, the tech-heavy Nasdaq Composite fell below both its 200-day moving average and 50-day average, which is a bearish signal.

“For the past month, we’ve been telling clients not to put any new money to work,” said Mr. Kosar.

The Wall Street Journal | Asbury Research

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