A weak outlook from Texas Instruments weighed on the Nasdaq on Wednesday and pushed an index of chip makers below a key technical level in a worrisome sign for the market's six-month uptrend.
The PHLX semiconductor index <.SOX> fell 3 percent to close below its 50-day moving average, which represents medium-term momentum, for the first time since September.
Texas Instruments led the losers, after its earnings target disappointed Wall Street. Its shares fell 3.1 percent to $34.74.
I think the markets are ready for a sell-off that continues to be started by the Nasdaq futures markets, said Harry Michas, technical analyst and stock-index futures trader at Iharmarketmonitor.com.
If the Nasdaq futures fall back below the 2,313.00 level again, it should attract more profit taking as well as some new shorts.
The futures were trading around 2,320.
International Business Machines Corp helped the Dow tread water, as the stock, the largest component in the price-weighted index, rose 2.2 percent to $165.86.
Even though semis' gains have outpaced the broader market in the last several months, the S&P 500 and the semiconductor index have been moving in the same direction, which could mean further declines in the sector and spell more of the same for the overall market.
A 20-day correlation between the S&P 500 and the semiconductor index <.SOX> was at 0.77, with a reading of 1 suggesting a perfect correlation.
The semiconductor index is up 41 percent since the start of September, when the recent rally began, while the S&P 500 is up 26 percent.
High oil prices dragged on the broader market on the two-year anniversary of stocks' bull run from the S&P 500's 12-1/2-year closing low of 676.53, which was sparked by the financial crisis.
The market is at a real inflection point here, said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. I'm not banging the table for the upside, but I would say there is more evidence for an upside breakout.
The Dow Jones industrial average <.DJI> dipped 1.29 points, or 0.01 percent, to finish at 12,213.09. The Standard & Poor's 500 Index <.SPX> shed 1.80 points, or 0.14 percent, to end at 1,320.02. The Nasdaq Composite Index <.IXIC> fell 14.05 points, or 0.51 percent, to close at 2,751.72.
Tech shares also felt the weight of Finisar Corp . The stock plummeted 38.5 percent to $24.61 after the network equipment maker forecast a dismal fourth quarter, blaming an inventory pile-up by telecommunications equipment makers in China.
Finisar is up 100 percent since the start of September, when the recent stock market rally began. Shares of sector peer JDS Uniphase fell 16.7 percent to $21.14.
A bright spot was provided by International Business Machines Corp , whose stock jumped 2.2 percent to $165.86 at the close and helped limit the Dow's loss.
IBM hit an intraday high of $167.72, its highest ever when adjusted for stock splits, after a host of analysts raised their target price on the stock. A day earlier, the tech giant reaffirmed its 2015 earnings target.
In the oil market, Brent crude gained $2.88 to settle at $115.94 a barrel as turmoil in Libya continued. The higher prices reinforced worries that high energy costs could dampen economic growth.
Copper weighed on miners' shares for a second day, falling 3 percent on investor concerns that elevated crude oil prices could lead to inflation and crimp global growth.
Freeport McMoran Copper and Gold Inc fell 3.3 percent to $48.45 and has lost more than 7 percent on increasing trading volumes in the last four days.
Volume was about 7.04 billion shares on the Nasdaq, NYSE and AMEX, below the daily average of 8.47 billion for last year.
Advancing and declining stocks were about evenly split on the NYSE, but on the Nasdaq about three stocks fell for every two that rose.
(Reporting by Edward Krudy; Additional reporting by Doris Frankel, Ryan Vlastelica, and Caroline Valetkevitch; Editing by Jan Paschal)