Dow Jones Futures: Nasdaq Breaks Key Level, Apple Dives; Here’s The Silver Lining
Dow Jones futures were little changed in after-hours trading, along with S&P 500 futures and Nasdaq futures. Software giant Adobe rose late on an earnings beat, while major Cathie Wood held Exact Sciences (EXAS) blew up a rival’s clinical trial.
X
The stock rally suffered damaging losses on Thursday, with the major indexes breaking below key levels to one-month lows.
Blame a second-day reaction on the hawkish outlook for the Fed rate hike, weak US and China economic data, various corporate news for Netflix (NFLX) and Nucor (NUE) and a bearish analyst call Nvidia (NVDA).
Leading stocks, including from the industrials, infrastructure, chip and solar sectors, fell back modestly and sometimes sharply.
But the dark clouds contain a silver lining: the market no longer tempts investors to take new positions.
apple ( AAPL ) suffered its worst one-day loss since late September, while Amazon.com (AMZN) is nearing the bottom of the bear market. Microsoft (MSFT) pulled back, but to a key support area. Nvidia stock fell back below its 200-day line on a dismal day for chip stocks.
Tesla ( TSLA ) hit a fresh bear market low on Thursday, but closed slightly higher. Elon Musk revealed another round of Tesla stock sales late Wednesday.
Earnings, other news
Adobe (ADBE) reported better-than-expected earnings for the fourth quarter of 2022 late Thursday on in-line revenue growth. The business software giant guided somewhat lower on revenue for the first quarter, but up on earnings. ADBE shares rose more than 4% after hours. The stock closed down 3.3% at 328.71. Adobe shares have bounced back from late September lows, but are still well below the 200-day line.
Guardian Health (GH) reported key results for its blood test for colon cancer in adults at average risk. While Guardant Health noted that the results were high enough to win Medicare reimbursement, GH stock crashed 35%. Meanwhile, EXAS shares rose more than 20%. Exact Sciences makes Cologuard, a stool-based DNA test for colon cancer.
Global IT and consulting giant Accenture (ACN) reports early Friday. ACN stock closed down 3.4% but found support at its 50-day line, a day after falling back below the 200-day.
Darden restaurants (DRI) earnings are also due Friday morning. DRI shares fell 0.7% to 142.95 on Thursday but bounced back from near the 50-day line. The Olive Garden parent has a purchase point of 149.90 from a cup with a handle.
Dow Jones Futures today
Dow Jones futures were flat versus fair value. S&P 500 futures and Nasdaq 100 futures rose higher.
The 10-year government yield rose 1 basis point to 3.46%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
The stock market rally sold off strongly on Thursday.
Before the opening, retail sales in November showed an unexpected decline of 0.6%. The Philly Fed and New York Fed regional surveys for December also pointed to contraction. But jobless claims fell significantly, exactly what the Fed doesn’t want to see.
It is, after all, weaker than expected Chinese industrial production and retail sales figures. Rapidly easing Covid restrictions could provide a boost, but China is likely to begin a massive wave of infections that could deter activity.
The Dow Jones Industrial Average fell 2.3% in Thursday’s trading, its worst performance in three months. The S&P 500 index fell 3.2 percent. The Nasdaq composite fell 3.5%. The small-cap Russell 2000 skidded 2.5%.
US crude oil prices fell 1.5% to $76.11 a barrel. Gasoline futures fell 3.5 percent. The prices of natural gas rose by 8.4 per cent.
The 10-year Treasury yield fell 5 basis points to 3.45%, just off last week’s three-month low of 3.4%. But that probably reflects recession fears more than curbing inflation. The two-year Treasury rate, more closely linked to Fed policy, was little changed on Thursday. The two-year interest rate has fallen sharply since the beginning of November.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) fell 3.5%, with MSFT stock a large holding. VanEck Vectors Semiconductor ETF ( SMH ) fell 3.8%, back below its 200-day line. NVDA stock is a large SMH component.
ARK Innovation ETF ( ARKK ) reflects more speculative stock stocks, selling 4.9%, just above November’s five-year low. The ARK Genomics ETF ( ARKG ) retreated 3.5% to a six-month low. The Tesla share is a large holding across Ark Invest ETFS. Cathie Wood boosted Ark’s overall TSLA stake on Wednesday. EXAS stock is also a top 10 Ark Invest holding.
The SPDR S&P Metals & Mining ETF (XME) gave up nearly 4%. The US Global Jets ETF (JETS) fell 2.55%. The SPDR S&P Homebuilders ETF ( XHB ) was down 0.6%, with some strong results. The Energy Select SPDR ETF (XLE) fell 0.6%. Health Care Select Sector SPDR Fund (XLV) returned 1.8%
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Megacap stocks
Apple shares fell 4.7% to 136.60, its worst one-day loss since Sept. 29. Shares are near October-November lows, with the June bear market low of 129.04 not much longer.
AMZN shares fell 3.4% to 88.45. It is approaching the November 9 bear market low of 85.87.
Microsoft shares retreated 3.2% to 249.01, but found support at its 21-day line. Shares had tested the 200-day line in the previous two sessions.
Nvidia shares fell back 4.1% to 169.52, falling below the 200-day line after retaking that key level on Monday. HSBC initiated the Nvidia stock with a reduced rating and a price target of 136. The Nvidia sale, as well as a Western Digital (WDC) downgrade, helped lead a chip sale.
Tesla shares fell to a new two-year low of 153.28 on Thursday morning before rebounding to 0.5% at 157.67. Shares are still down 12% this week. Late Wednesday, CEO Elon Musk revealed that he sold 22 million TSLA shares on 12-14. December for $3.6 billion, adding to Tesla investors’ frustrations. But that likely means Musk’s latest sell-off is over.
Meanwhile, Tesla is offering 10,000 free Supercharger miles to anyone who buys a Model 3 or Y in the US before the end of the year, in addition to a $3,750 rebate. Tesla is urging people to take delivery now, and boost the numbers for the fourth quarter, instead of waiting until January 1 for new tax credits for electric cars.
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Market rally analysis
The stock market rise had a clearly bad day. The Nasdaq composite and Russell 2000 fell below their 50-day moving averages for the first time in just over a month. The S&P 500, which had hit resistance at the 200-day line, gapped below the 21-day line. The Dow Jones is also well below its 21-day, heading towards its 50-day and 200-day lines.
All the major indexes are at their lowest levels since November 10, when they rose on the consumer price index for October. The Nasdaq is about where it was on the follow-up day on October 21.
Most leading stocks came under pressure, some received support and others did not. There were a few winners, such as Lennar (LEN) and Nordson (NDSN) on earnings, but that is the exception.
Megacap stocks like Apple, Amazon and Tesla are in serious trouble. Microsoft’s 200-day line resistance is not a good sign. Nvidia stock and VanEck Semiconductors ETF falling below the 200-day mark is definitely discouraging.
Is the market rally, from the October 13 low to the December 13 high, just a bear market rally coming to an end? It is too early to say. It is also possible that the market will pick up again, or now trade in a sideways manner.
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What to do now
A choppy market rally is dangerous because it lures investors into stocks that are flashing buy signals, and immediately reverses lower.
But let’s say you bought due to relative weakness in the market, such as pullbacks to the 21-day line, over the last few weeks? Well, the indices are undermining all the recent lows. So even these trades are likely to struggle unless you took a quick profit.
Investors should probably reduce their exposure, if only because individual stocks are underperforming.
Silver lining? Few stocks are flashing buy signals while the market is clearly weakening. It is easier to be out in that environment.
But stay engaged. A couple of good days could revive the market rally and bend stocks back into buy territory. So run your monitors and update your watchlists. Look for stocks that have important support levels, such as the 21-day or 50-day lines. Some big recent winners are now retreating to the 50-day/10-week lines.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.
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200-Day Average: Last Support Line?
