Dow Jones Rises But Leaders Fall, Tesla Shares Trigger Sell Rule; What to do now

Dow Jones futures fell slightly after hours, along with S&P 500 futures and Nasdaq futures. Stocks struggled on Wednesday as weak economic data raised fears of a recession for a second session in a row.

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The major indexes are still not looking too bad, with the Nasdaq falling but the Dow Jones rising.

But once again, falling stocks decisively beat the winners. Once again, many of these losers fell hard. But on Wednesday, many more of the big losers were leading shares, such as e.g On holding (ONON), MarketAxess (MKTX) and PagerDuty (PD). C3.ai (AI) sold off for a second session, with AI stock now staging a massive, off-week to the downside.

Others, including many chip names, fell solidly, now showing more chart damage after relatively modest retreats on Tuesday.

Tesla (TSLA) skidded for a third straight day, triggering the automatic sell rule.

Megacap technologies such as apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL), Meta platforms (META) and Nvidia (NVDA) all fell.

Meanwhile, bank shares came under more pressure. Western Alliance Bancorp ( WAL ) plunged, prompting a retreat in regional banks, although they pared losses in the afternoon. Charles Schwab (SCHW) hit a two-year low. Although bank deposits may be relatively safe, the biggest problem now may be long-term bank profitability as well as lending restrictions that are quickly slowing the economy.

Medical names look relatively strong, along with other defensive growth or defensive play.

PagerDuty stocks, On Holding, Meta and Nvidia are on the IBD Leaderboard. Microsoft and Google shares are on the IBD list of long-term leaders. The ONON share is on the IBD 50.

Despite relatively benign action in the major indices, the weakness in growth and other leading stocks is worrying. Investors should be looking to protect profits and cut losses.

Dow Jones Futures today

Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock market rally

The stock rally had a generally negative session, despite the mixed action on the major indices.

The ADP employment report showed private payrolls rose much less than expected in March, a day after a big drop in job vacancies in February. The ISM services index for March fell more than expected, signaling rapidly slowing growth.

The Dow Jones Industrial Average rose 0.2% in Wednesday’s trading. The S&P 500 index fell 0.25 percent. The Nasdaq composite retreated 1.1%. The small-cap Russell 2000 gave up 1%.

The US crude oil price fell by 0.1 percent to 80.61 dollars per barrel.

The 10-year government yield fell 5 basis points to 3.285%. That’s the lowest point in nearly seven months. The 2-year Treasury yield fell 7 basis points to 3.76%, from 34 basis points in the last four sessions.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.9%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) gave up 0.65%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1.3%. Microsoft shares and a few other heavyweights dominate the IGV, while more speculative software names like PagerDuty suffered bigger losses. The VanEck Vectors Semiconductor ETF ( SMH ) gave up 1.75%, with NVDA stock a large holding.

The ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, falling 3.6% and the ARK Genomics ETF ( ARKG ) falling 1.8%. TSLA stock is the top holding across Ark Invest’s ETFs. Some Ark funds also own PD shares.

The SPDR S&P Metals & Mining ETF ( XME ) retreated 1.15% and the Global X US Infrastructure Development ETF ( PAVE ) 1.7%. The US Global Jets ETF (JETS) and the SPDR S&P Homebuilders ETF (XHB) were down 1.5%. The Energy Select SPDR ETF (XLE) climbed 1.5% and the Health Care Select Sector SPDR Fund (XLV) rose 1.7% to its best level since February 14.

Bank shares

The Financial Select SPDR ETF ( XLF ) was down 0.1%, with the SCHW stock in the top 10. The SPDR S&P Regional Banking ETF ( KRE ), which includes the WAL stock, was down 1% but ended at lows.

Western Alliance shares plunged as much as 19.4% after releasing some financial metrics but not disclosing deposits. Shares fell when the California-based bank revealed deposits fell 11% on March 31 toward the end of 2022, not as bad as some feared. Still, WAL stock closed down 12.4%.

Financial regulators have strongly signaled that they will protect all deposits in any bank that buckles, even though investors in bank stocks may not fare well. The bigger concern may be that the banks will be far less profitable, as they will have to pay more for deposits in the future. More generally, lending is likely to be limited, particularly from regional banks. This indicates a much faster economic decline than previously expected.

Top five Chinese stocks to watch now

Leading stock dive

Here are just a few examples of leading stocks selling off on Wednesday.

ONON shares plunged 9.7% to 29.35 as a Baird analyst downgraded it to neutral. On Tuesday, the high-end athletic shoe maker managed a rare shorting pattern, a few weeks after exploding off a base on strong Q4 results and 2023 guidance.

PD stock, which lost just a fraction Tuesday to close right around a buy point, fell 6.1% Wednesday to 31.78.

MKTX stock fell 13.9% to 337.74, dipping below a 389.67 buy point and the 50-day line. MarketAxess plunged after releasing trading figures for March. Tradeweb Markets ( TW ), which also released March data, shed 7.6% to undermine a buy point as well.

Meanwhile, AI shares fell 15.5% to 21.09. On Tuesday, C3.ai crashed 26%. After skyrocketing 33% last week, AI stock has already managed to stage an external, downside week, down 37% so far.

Megacap technology

Apple shares fell 1.1% and Microsoft 1%, which did not minimize the pain of the large-cap indexes on Wednesday. Nevertheless, both are in buying zones. META shares retreated 1.5%, still slightly extended. Nvidia shares gave up 2.1%, still strongly extended. Google stock reversed from near a buy point, closing down just 0.2%.

Tesla stock retreated 3.7% to 185.52, falling below its 50-day moving average, bringing its weekly loss to 10.6% so far. Delivery figures for the 1st quarter on Sunday follow. Shares fell more than 7%-8% below the 200.76 cup handle buy point, triggering the automatic sell rule. TSLA stock could forge a new handle in a few days with a buy point at 207.89. The 200-day moving average, currently near 215, threatens possible resistance.

Market rally analysis

Investors should track the health of a stock market rally via the major indexes and leading stocks. On Wednesday, the major indexes closed mixed, but that masked weakness in leaders.

The Nasdaq Composite fell for the third day in a row, back below the 12,000 level, but still looks like a healthy break. The S&P 500 looks similar.

The Dow Jones rose slightly on medical stocks as well as consumer goods such as Walmart (WMT).

The Russell 2000 looks weakest, trading below all moving averages, with banks as a big negative.

Losers trumped winners by 2-to-1 on the Nasdaq and 3-to-2 on the NYSE.

On Tuesday, it was generally steel, building materials and construction and production-related groups that were hardest hit. Many of those stocks continued to fall on Wednesday, but growth plays and other leaders were the big losers.

Software names such as PagerDuty, which held up or even gained on Tuesday, slumped on Wednesday.

Chips, who lost ground Tuesday but generally looked healthy, was roughed up Wednesday.

ONON stock, MarketAxess and some other leaders fell.

On the plus side, housebuilders are holding up, and mortgage interest rates have fallen significantly in recent weeks. However, manufactured home builder Skyline Champion (SKY) fell 2.3%, down 9% for the week.

The broad medical sector is stepping up, including medical products, drug makers, large-cap biotech companies and now health insurers are getting on board. Medicines are defensive growth plays, offering steady or sometimes strong growth that is relatively insulated from the economy due to public and private insurance that covers most of the costs.

In terms of direct defensive plays, consumer goods such as Walmart and Hershey (HSY) is doing well. Utilities and REITs are also moving up.

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What to do now

The stock rally is struggling right now. The major indexes look fine, but leading stocks increasingly do not. Worse is that the sales have often been violent. As executives showed Wednesday, some stocks will do well on any given bad day, only to crumble later.

Investors should cut exposure, even if that is not the express goal. Cutting losers and taking at least partial profits in winners will help you scale back overall.

Some stocks are badly damaged. Others just need a good day or two to set up again. Still others, such as medications, are already moving toward being actionable. So it is important to be committed and flexible. Have your watch lists and your exit strategies are clear.

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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