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Tech Stocks Sink; Why Nvidia, InterDigital, Jack Triggered Clear Sell Signals

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More high-growth companies issued sell signals on their daily and weekly charts Thursday as the Nasdaq composite lagged the NYSE indexes. The Russell 2000 lost 0.7%, cutting its year-to-date advance to 2.8%.

Nvidia (NVDA), which initially showed signs of overheating back in the final week of December as it staged a climax run, dropped 9% and fell sharply below its key 50-day moving average for the first time since its huge run began with a cup-with-handle breakout at 33.16 in mid-March of 2016.

A few analyst downgrades sparked the increased selling pressure.

The chip designer and leader in graphic processors still hasn't fallen that much from its all-time peak of 119.93.

At a little more than 16% below that former peak, the stock could end up forming a new base, but it would also be good to see Nvidia undercut its recent low of 99.11. Why? That would serve to reset the base count.

According to IBD's proprietary Stock Checkup tool, Nvidia's RS Rating remains a nearly perfect 98 on a scale of 1 to 99, but don't use the RS rating as a selling gauge. This rating keys off action over the past 12 months; when you decide whether to hold a good stock or sell it, first assess the most immediate price-and-volume interaction on both the daily and weekly charts.

Fellow tech InterDigital (IDCC), meanwhile, got trampled by sellers as the wireless technology expert gapped down and lost 13%. By day's end, the stock's volume exceeded 2.3 million shares, easily the highest so far this year.

InterDigital also sliced through the 50-day moving average, triggering a major sell signal to take profits and cut losses. The weakness came after the company reported its second straight quarter of triple digit earnings and sales growth. Yet, the Street still sees a massive drop in earnings for 2017, down 62% to $3.30 a share.

The Nasdaq composite, burdened by heavy selling in Chinese internet and semiconductor names pared a 1% intraday loss to 0.4%. As noted in today's Big Picture column, volume edged higher on the Nasdaq, translating into another mild day of distribution, or intense professional selling, on the tech-dominated market benchmark.

The S&P 500 inched slightly higher and the Dow Jones industrial average gained nearly 0.2%.

Some defensive sectors, including utilities, fared better; the Dow Jones utility average rose 1% for the day. Among IBD's 197 industry groups, gas distribution, water supply and electric power utilities helped pace the upside.

Dow 30 components Johnson & Johnson (JNJ) and UnitedHealth (UNH) outperformed with gains of more than 1%, reflecting renewed demand within the medical sector.

J&J has been forming a saucer-like base for nearly eight months with an early buy point of 122.60, 10 cents above the 122.50 spike in the middle of the base. The saucer is more clearly visible on a weekly chart.

In the case of UnitedHealth, a very shallow flat base has emerged, furnishing a 164.10 entry point, a dime above the base's left-side peak of 164.

Yet while more medical service and device companies have cropped up on IBD's screened new high list in recent weeks (see the latest list via the IBD Data Tables page on the "Stock Lists" section at the home page of Investors.com), biotechs are still lagging in general.

Fast food chain Jack In The Box (JACK), meanwhile, kept slumping. The former market leader crumbled nearly 7% and slid below its 200-day moving average in fast trade, another key sell signal. Q4 earnings grew 27% on an adjusted basis but still missed the consensus forecast. On Wednesday, the burger and taco chain flashed an earlier sell signal by falling further below its 50-day line in heavy turnover.

Q4 sales rose just 4% after a flat performance in the year-ago quarter.

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