The stock market rally lost ground Tuesday, pulling back from resistance levels and triggering a sell-off in all major indices, with the small caps being hit the hardest.

The Russell 2000 (IWM) led the indexes lower with losses of 1.36%. The Nasdaq dropped 1.19% to $12,493.93, and the S&P fell 0.42% to 4122.47, marking its fourth consecutive day in the red.

The two key tech indexes, QQQ and SMH were down -1.13% and 4.19% respectively today.

SMH's sell-off drove the Nasdaq lower, and in response to a sell-off in semiconductor stocks, the stock market sagged and appeared to lose all momentum. The S&P 500 lost ground today and retreated into negative territory after hitting resistance.

As you can see in the chart above, the QQQ is still higher than its early June swing highs, which is a pivotal support level. This is its key support level to hold.

Granny Retail (XRT) sank -3.84% today, suggesting that yesterday’s rally may not have further to run. Only time will tell, but XRT sinking today is not a good sign and could signal that this rally is running out of steam.

High inflation and declining consumer confidence do not portray a great investment outlook as investors anxiously prepare for the CPI inflation data.

As we mentioned yesterday, if the CPI report on Wednesday doesn't upset the uptrend, there's potential support or resistance, depending upon which side of the trend you are on. If inflation is muted or higher than expected, expect a the immediate support or resistance levels to be broken.

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