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 a profit swing, while the big Cathie Wood holding Exact Sciences (EXAS) skyrocketed during a rival’s clinical trial.
The stock market rally took damaging losses on Thursday, with major indices falling below key levels to month-long lows.
Blame a second-day reaction on the Fed’s aggressive rate hike outlook, weak economic data for the US and China, various corporate news for Netflix (NFLX) and nuclear (NUE) and a bearish analyst call for Nvidia (NVDA).
Leading stocks, including those from the industrial, infrastructure, chip and solar energy sectors, fell 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 biggest one-day loss since late September Amazon.nl (AMZN) is approaching the trough of the bear market. Microsoft (MSFT) pulled back, but to a key area of support. Shares of Nvidia fell back below the 200-day mark on a grim day for chip stocks.
Tesla (TSLA) reached a new bear market low on Thursday, but closed slightly higher. Elon Musk announced another round of sales of Tesla shares at the end of Wednesday.
Earnings, other news
Adobe (ADBE) reported better-than-expected Q4 2022 revenue late Thursday based on in-line revenue growth. The enterprise software giant went a little lower on fiscal Q1 revenue, but on earnings. ADBE shares are up more than 4% after hours. Shares closed 3.3% lower to 328.71. Adobe shares have bounced back from late-September lows, but are still well below the 200-day mark.
Guarding health (GH) reported key results for its colorectal cancer blood test in adults at average risk. While Guardant Health noted that the results were high enough to win Medicare reimbursement, the GH stock crashed by 35%. Meanwhile, EXAS stock shot up more than 20%. Exact Sciences makes Cologuard, a stool-based DNA test for colorectal cancer.
Global IT and consulting giant accent (ACN) reports early Friday. ACN shares closed 3.4% but found support near the 50-day line, one day after falling back below the 200-day mark.
Darden Restaurants (DRI) earnings are also expected on Friday morning. DRI shares fell 0.7% to 142.95 on Thursday, but recovered from near the 50-day line. The Olive Garden parent has a buy point of 149.90 from a cup-with-handle base.
Dow Jones Futures Today
Dow Jones futures were flat versus fair value. S&P 500 futures and Nasdaq 100 futures rose higher.
The yield on 10-year Treasury bills rose 1 basis point to 3.46%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally took off sharply on Thursday.
Before opening, retail sales in November showed an unexpected drop 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.
This is all due to weaker-than-expected Chinese industrial production and retail sales. Rapidly easing Covid restrictions could provide a boost, but China is likely to kick off a massive wave of infections that could deter activity.
The Dow Jones Industrial Average fell 2.3% in Thursday’s stock trading, its worst performance in three months. The S&P 500 index fell 3.2%. The Nasdaq composite fell 3.5%. The small-cap Russell 2000 lost 2.5%.
US crude oil prices fell 1.5% to $76.11 a barrel. Gasoline futures fell 3.5%. Natural gas prices rose by 8.4%.
The 10-year Treasury yield fell 5 basis points to 3.45%, just slightly off last week’s three-month low of 3.4%. But that probably reflects recession fears more than declining inflation. Two-year government bond yields, more closely tied to Fed policy, changed little on Thursday. Two-year interest rates have fallen sharply since early November.
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Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 3.5%, with MSFT stocks the key holding. The VanEck Vectors Semiconductor ETF (SMH) fell 3.8%, back below its 200-day line. NVDA stock is a large SMH component.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) sold 4.9%, just above its five-year low in November. ARK Genomics ETF (ARKG) fell 3.5% to a six-month low. Tesla stock is an important share in Ark Invest ETFS. Cathie Wood added to Ark’s total TSLA deployment on Wednesday. EXAS stocks are also among the top 10 of Ark Invest.
SPDR S&P Metals & Mining ETF (XME) lost nearly 4%. US Global Jets ETF (JETS) fell 2.55%. SPDR S&P Homebuilders ETF (XHB) fell 0.6%, with some strong performers. The Energy Select SPDR ETF (XLE) fell 0.6%. The Health Care Select Sector SPDR Fund (XLV) gave up 1.8%
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Apple stock fell 4.7% to 136.60, its biggest one-day loss since Sept. 29. Shares are close to their October and November lows, with the June bear market low of 129.04 not much farther.
AMZN shares fell 3.4% to 88.45. That is approaching the bear market low of November 9 at 85.87.
Microsoft shares fell 3.2% to 249.01, but found support on the 21-day line. Stocks had tested the 200-day line in the previous two sessions.
Nvidia shares fell 4.1% to 169.52, falling below the 200-day line after retaking that key level on Monday. HSBC started Nvidia stock with a downgrade rating and a price target of 136. The sell-off of Nvidia, as well as a Western Digital (WDC) downgrade, led to chip sell-off.
Tesla shares fell to a new two-year low of 153.28 on Thursday morning before recovering to close 0.5% at 157.67. Shares are still down 12% this week. Late Wednesday, CEO Elon Musk announced that he had sold 22 million TSLA shares for $3.6 billion on Dec. 12-14, adding to the frustrations of Tesla investors. But that probably means Musk’s last 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, on top of a $3,750 rebate. Tesla is encouraging people to take delivery now, which boosts Q4 numbers, rather than waiting for January 1 for new EV tax credits.
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Analysis of the market rally
The stock market rally had a distinctly 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 met resistance at the 200-day line, fell below the 21-day line. The Dow Jones is also well below its 21-day mark, heading towards its 50-day and 200-day lines.
All major indices are at their lowest levels since Nov. 10, when they lagged October’s consumer price index. The Nasdaq is roughly where it was on the October 21 follow-up day.
Most of the leading stocks came under pressure, with some finding support and others not. There were a few winners, such as lennar (To lend Nordson (NDSN) on revenue, but those are the exceptions.
Megacap stocks like Apple, Amazon and Tesla are in big trouble. Microsoft’s 200-day line resistance isn’t a good sign. Nvidia stock and the VanEck Semiconductors ETF falling below the 200-day mark is absolutely daunting.
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 say. It is also possible that the market is recovering or is now trading sideways.
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What to do now
A choppy market rally is dangerous because it lures investors into stocks that send buy signals, then immediately drop back down.
But let’s say you’ve been buying into relative weakness in the market over the past few weeks, such as pullbacks to the 21-day line? Well, the indices are all undercutting their recent lows. So even those trades are likely to struggle unless you make a quick profit.
Investors should probably reduce their exposure, if only because individual stocks don’t work.
The silver lining? Few stocks are sending buy signals while the market is clearly weakening. In that environment it is easier to stay outside.
But stay involved. A few good days could revive the market rally and drive stocks back into buying territory. So run your screens and update your watchlists. Look for stocks with key 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 market updates and more.
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