by Dow Jones futures fell slightly in overnight trading, along with S&P 500 and Nasdaq futures. Software giant Adobe lagged on an earnings pace, while great Cathie Wood held up exact sciences (EXAS) skyrocketed in a rival’s clinical trial.
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The stock market rally took damaging losses on Thursday, with major indexes dipping below key levels at one-month lows.
Blaming a second day reaction on Fed rate hike prospects, weak US and China economic data, various corporate news for Netflix (NFLX) and Nucor (NUE) and a bear analyst ask Nvidia (NVDA).
Major stocks, including industrials, infrastructure, chips and solar, fell modestly and at times sharply.
But the dark clouds contain a silver lining: The market is no longer tempting investors to take new positions.
Apple (AAPL) suffered its worst one-day loss since late September, while Amazon.com (AMZN) is approaching the low of the bear market. Microsoft (MSFT) has pulled back, but in a key support area. Nvidia stock fell below its 200-day line on a gloomy day for chip stocks.
Tesla (TSLA) made a new bear market low on Thursday but closed slightly higher. Elon Musk revealed another round of Tesla stock selling on Wednesday.
Earnings, other news
Adobe (ADBE) reported better-than-expected fourth-quarter 2022 earnings on online revenue growth late Thursday. The enterprise software giant led slightly lower on fiscal first-quarter revenue but higher on earnings. ADBE shares are up more than 4% after hours. Shares closed down 3.3% at 328.71. Adobe shares have rebounded from their late-September lows but are still well below the 200-day line.
Watching Health (GH) reported key findings for its blood test for colorectal cancer in adults at average risk. While Guardant Health noted the results were high enough to get Medicare reimbursed, GH’s stock plunged 35%. Meanwhile, EXAS shares are up more than 20%. Exact Sciences manufactures Cologuard, a stool-based DNA test for colorectal cancer.
Global IT and consulting giant Accenture (ACN) reports early Friday. ACN stock closed down 3.4% but found support at the 50-day line one day after dipping below the 200-day mark.
Darden Restaurants (DRI) earnings are also due Friday morning. DRI stock fell 0.7% to 142.95 on Thursday but rebounded near its 50-day line. The Olive Garden parent has a 149.90 buy point from a cup base with handle.
Dow Jones Futures today
Dow Jones futures lost 0.1% from fair value. S&P 500 futures sank and Nasdaq 100 futures fell 0.1%.
The 10-year Treasury yield rose 2 basis points to 3.47%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rebound
The stock market rally was sold off sharply on Thursday.
Before the opening, November retail sales showed an unexpected decline of 0.6%. December regional polls by the Philly Fed and the New York Fed also pointed to a contraction. But jobless claims have dropped significantly, exactly what the Fed doesn’t want to see.
This all followed weaker-than-expected Chinese industrial production and retail sales data. The rapid easing of Covid restrictions may offer a boost, but China is likely initiating a massive wave of infections that could deter business.
The Dow Jones Industrial Average fell 2.3% in the stock market on Thursday, its worst performance in three months. The S&P 500 index fell 3.2%. The Nasdaq Composite tumbled 3.5%. The small-cap Russell 2000 was down 2.5%.
US crude prices fell 1.5% to $76.11 a barrel. Gasoline futures tumbled 3.5%. Natural gas prices jumped 8.4%.
The 10-year Treasury yield fell 5 basis points to 3.45%, just a bit off last week’s three-month low of 3.4%. But that likely reflects recession fears rather than easing inflation. The 2-year Treasury yield, more closely tied to Fed policy, was adjusted slightly on Thursday. The two-year yield has been in sharp decline since the beginning of November.
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ETFs
Among growth ETFs, iShares Expanded Tech-Software Sector (IGV) ETF tumbled 3.5%, with MSFT stock a major holding. The VanEck Vector Semiconductor (SMH) ETF tumbled 3.8%, returning below its 200-day line. NVDA stock is a large component of SMH.
Reflecting stocks in more speculative history, ARK Innovation ETF (ARKK) fell 4.9%, just above November’s five-year low. ARK Genomics ETF (ARKG) fell 3.5% to a six-month closing low. Tesla shares are a major holding in Ark Invest ETFS. Cathie Wood added to Ark’s overall share of TSLA on Wednesday. EXAS shares are also one of Ark Invest’s top 10 holdings.
SPDR S&P Metals & Mining ETF (XME) was down nearly 4%. The US Global Jets ETF (JETS) fell 2.55%. SPDR S&P Homebuilders ETF (XHB) fell 0.6%, with some strong performances. The Energy Select SPDR ETF (XLE) fell 0.6%. The Health Care Select Sector SPDR Fund (XLV) dropped 1.8%
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Mega cap stocks
Apple shares tumbled 4.7% to 136.60, its worst one-day loss since Sept. 29. The shares are near their October-November lows, with the June bear market low of 129.04 not far beyond that.
AMZN stock fell 3.4% to 88.45. This is approaching the November 9 bear market low of 85.87.
Microsoft shares fell 3.2% to 249.01, but found support at the 21-day line. The shares had tested the 200-day line in the previous two sessions.
Nvidia stock fell 4.1% to 169.52, falling below its 200-day line after resuming that key level on Monday. HSBC started Nvidia stock with a reduced rating and a price target of 136. The Nvidia sell-off, as well as a western digital (WDC) downgrade, helped drive a chip sell-off.
Tesla shares fell to a new two-year low of 153.28 on Thursday morning before rebounding to close up 0.5% at 157.67. Shares are still down 12% this week. On Wednesday, CEO Elon Musk revealed that he sold 22 million shares of TSLA from Dec. 12-14 for $3.6 billion, adding to the frustrations of Tesla investors. But that probably means Musk’s latest sale 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, plus a $3,750 discount. Tesla is encouraging people to take delivery now, ramping up fourth-quarter figures, rather than waiting until Jan. 1 for new EV tax credits.
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Analysis of market rallies
The stock market rally was having a bad day. The Nasdaq composite and the Russell 2000 fell below their 50-day moving averages for the first time in just over a month. The S&P 500, which had encountered resistance at the 200-day line, fell below the 21-day line. The Dow Jones is also well below its 21 day lines, heading towards its 50 and 200 day lines.
All major indices are at their lowest levels since Nov. 10, when they jumped on October’s consumer price index. The Nasdaq is about where it was the next day of October 21st.
Most of the major stocks have come under pressure, some have found support and some have not. There have been some winners, like Lennar (LEN) and Nordson (NDSN) on earnings, but those are 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 the VanEck Semiconductors ETF falling below the 200-day line are downright discouraging.
Is the market’s uptrend from the October 13 low to the December 13 high just a bear market rally coming to an end? It’s too early to tell. It is also possible that the market is bouncing or trading sideways now.
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what to do now
A choppy market rally is dangerous because it draws investors into stocks that are flashing buy signals, then immediately reverse lower.
But suppose you bought into relative market weakness, such as pullbacks to the 21-day line, over the past few weeks? Well, the indices are all falling below their recent lows. So those trades are also probably struggling unless you’ve been taking quick profits.
Investors should probably reduce exposure, if for no other reason than individual stocks aren’t working.
The silver lining? A few stocks are giving buy signals as the market is clearly weakening. It’s easier to be outside in that environment.
But stay engaged. A couple of good days could revive the market rally and push the shares back into buy areas. Then run your screens and update your checklists. Look for stocks that hold key support levels, such as the 21-day or 50-day lines. Some recent big winners are now returning to 50 day/10 week lines.
Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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The 200-day average: the last line of support?
