The market is facing multiple key tests in the charts right now, especially tech stocks

Published Wed, May 5 20216:36 AM EDTUpdated Wed, May 5 20218:31 AM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Tuesday's sell-off, centered in tech and other high-flying stocks, could signal a test of whether the broader market will withstand the selling pressure or enter an extended period of choppiness. The Nasdaq declined 1.9%, while the S & P 500 slipped 0.7%. The Dow closed flat, up about 19 points after trading lower during the day. Market technicians point to several important technical moves that could indicate a more volatile stretch for stocks. Some key levels held and the market was rebounding slightly on Wednesday , but it's not clear the test is over. For one, the VIX, the Cboe Volatility Index, successfully tested its 50-day moving average at around 20. The VIX rose over 20, a key level that signals a potential turning point for more volatility. It closed under that level, ending the day at 19.48, up 6.4%. A rising VIX, a measure of investor fear derived from option prices on the S & P 500, is usually accompanied by a falling stock market. "There is some significant underperformance this week from technology versus the broader market. It shows a real crack in the uptrend," said Katie Stockton, founder at Fairlead Strategies. "The sharp knee jerk of [Tuesday's] decline shows how things were really pent-up," she said. "It's indicative of market sentiment being too complacent." Stockton said the afternoon reversal a bit higher did not resolve anything, and the test could continue. "Sometimes when you get reversals it indicates a selling climax. but it wasn't strong enough to indicate that," she said. Stockton said the Nasdaq 100 made an important break below its short-term support level of 13,717. It was down 1.9% at 13,544. Just looking at Alphabet , one of the Big Tech growth favorites, Stockton said its chart signaled a few weeks more of choppiness. Alphabet closed at $2,306, off 1.6%. "For Alphabet in particular, with today's gap down, it leaves an island reversal on the chart," she said. "It's just a short-term setup. It does support another two to three weeks of downside." The market was ripe for the selling, which hit the riskiest companies hard, said Frank Cappelleri, executive director at Instinet. The Ark Innovation ETF ARKK was down 3.6% and has been moving lower since April 26. Ark's flagship exchange-traded fund temporarily slipped below its 200-day moving average level of $112.71 for the first time in more than a year, according to data from CNBC. It managed to close above that level at $113.29. "It was able to hold the 200-day, which a lot of traders are watching, " said Cappelleri. "I think it was important to see that hold at least the first time. The issue with ARKK and others is the rallies from support levels have been faded and we don't know if that's going to happen again. That's the biggest concern." The 200-day moving average is a momentum indicator that could portend a negative trend if the ETF trades below that level. The Solar Invesco ETF also slid below its 200-day moving average of $81.20. The fund was down about 6%, closing at $77.20 per share. Bitcoin was also sharply lower. The cryptocurrency was off about 5%, at about $54,447 in late afternoon trading, according to Coin Metrics. Stockton said support would be at $42,000, the January high, and it could move lower to test that level. Growing correlation Analysts have been seeing a closer correlation between bitcoin and the stock market lately, particularly the Nasdaq. "I guess people are looking at this and wondering if it's a hiccup that has been overdue," said Cappelleri. "The market tends to readjust or it's going to be something that's more substantial. Looking at the S & P 500, it's gone 31 days without a 1% move." The S & P technology sector was down 1.9% Tuesday, but the industrials, financials, energy and materials sectors were all higher. Materials rose 1% and financials were up 0.7%. Industrials were up 0.4%, and energy was barely higher. "Even with that, you still have the value sectors keeping things together," said Cappelleri. Some of the growth ETFs were down for a sixth day, so the question now is, "When will investors begin hunting for bargains?" he said.

Traders on the New York Stock Exchange.

Source: NYSEa

Tuesday's sell-off, centered in tech and other high-flying stocks, could signal a test of whether the broader market will withstand the selling pressure or enter an extended period of choppiness.

The Nasdaq declined 1.9%, while the S&P 500 slipped 0.7%. The Dow closed flat, up about 19 points after trading lower during the day.

Market technicians point to several important technical moves that could indicate a more volatile stretch for stocks. Some key levels held and the market was rebounding slightly on Wednesday, but it's not clear the test is over.

For one, the VIX, the Cboe Volatility Index, successfully tested its 50-day moving average at around 20.