Dow Jones futures were little changed in after-hours trading, along with S&P 500 and Nasdaq futures. Software giant Adobe grew behind a profit pace, while big holding Cathie Wood Exact Sciences (EXAS) skyrocketed in a rival’s clinical trial.
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The stock market rally suffered damaging losses on Thursday, with major indexes dropping below key levels to hit one-month lows.
Blame it on a second-day reaction to the Fed’s rate hike outlook, weak US and Chinese economic data, various corporate news for netflix (NFLX) and Nucor (NUE) and bearish analyst call for Nvidia (NVDA).
Major stocks, including those in the industrials, infrastructure, chip and solar energy sectors, fell modestly and at times sharply.
But the dark clouds contain a silver lining: the market no longer entices investors to take new positions.
Apple (AAPL) suffered its worst one-day loss since late September, while Amazon.co.uk (AMZN) is approaching its bear market low. Microsoft (MSFT) retreated, but in a key support area. Nvidia stock fell back below its 200-day line on a dismal day for chip stocks.
You’re here (TSLA) reached a new bear market low on Thursday, but closed slightly higher. Elon Musk unveiled a new round of Tesla stock sales on Wednesday night.
Earnings, Other News
Adobe (ADBE) announced better-than-expected fourth quarter 2022 results on Thursday evening thanks to growth in online revenues. The enterprise software giant guided its fiscal first-quarter revenue slightly lower, but its profits higher. ADBE stock jumped more than 4% after hours. The shares closed down 3.3% at 328.71. Adobe stock has rebounded from late September lows, but remains well below its 200-day line.
Guardian of health (GH) reported key results from its blood test for colorectal cancer in average-risk adults. While Guardant Health noted the results were high enough to secure Medicare reimbursement, GH stock plummeted 35%. Meanwhile, EXAS stock jumped more than 20%. Exact Sciences makes 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 its 50-day line, a day after falling back below its 200-day line.
Dard Restaurants (DRI) income is 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 buy point of 149.90 from a cup base with handle.
Dow Jones Futures Today
Dow Jones futures lost a fraction of fair value. S&P 500 and Nasdaq 100 futures fell slightly.
The 10-year Treasury yield rose 1 basis point to 3.46%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally came to a strong end on Thursday.
Prior to the open, November retail sales posted an unexpected 0.6% decline. The Philadelphia Fed and New York Fed regional surveys for December also indicated a contraction. But jobless claims have fallen dramatically, exactly what the Fed doesn’t want to see.
This all follows weaker-than-expected Chinese industrial production and retail sales figures. The rapid easing of Covid restrictions may offer a boost, but China is likely starting a massive wave of infections that could discourage 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 slipped 2.5%.
U.S. crude oil prices fell 1.5% to $76.11 a barrel. Gasoline futures fell 3.5%. Natural gas prices jumped 8.4%.
The 10-year Treasury yield fell 5 basis points to 3.45%, just slightly from last week’s three-month low of 3.4%. But that probably reflects recession fears more than falling inflation. The two-year Treasury yield, more closely tied to Fed policy, was little changed on Thursday. The two-year yield has been falling sharply since early November.
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Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 3.5%, with MSFT stock a major holding. ETF VanEck Vectors Semiconductor (SMH) fell 3.8%, returning below its 200-day line. The NVDA action is a big SMH component.
Reflecting more speculative historical stocks, ARK Innovation ETF (ARKK) sold 4.9%, just above November’s five-year low. ARK Genomics ETF (ARKG) fell 3.5% to a six-month closing low. Tesla stock is a major holding in Ark Invest ETFS. Cathie Wood added to Ark’s overall stake in TSLA on Wednesday. EXAS stock is also among Ark Invest’s top 10 holdings.
SPDR S&P Metals & Mining ETF (XME) fell almost 4%. The US Global Jets ETF (JETS) fell 2.55%. The SPDR S&P Homebuilders ETF (XHB) edged down 0.6%, with some good performance. ETF Energy Select SPDR (XLE) fell 0.6%. The SPDR healthcare sector fund (XLV) fell 1.8%
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Megacap shares
Apple stock fell 4.7% to 136.60, its worst one-day loss since Sept. 29. Stocks are near their October-November lows, with the June bear market low at 129.04 not much further away.
AMZN stock fell 3.4% to 88.45. This is approaching the November 9th bear market low at 85.87.
Microsoft stock fell 3.2% to 249.01, but found support at its 21-day line. Stocks 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 rallying from that key level on Monday. HSBC launched Nvidia stock with a lower quote and a price target of 136. The sale of Nvidia, as well as a western digital (WDC) downgrade, helped lead a chip sale.
Tesla stock fell Thursday morning to a new two-year low at 153.28 before rebounding to close 0.5% higher at 157.67. Shares are still down 12% this week. Late Wednesday, CEO Elon Musk revealed he sold 22 million shares of TSLA from Dec. 12-14 for $3.6 billion, adding to the frustrations of Tesla investors. But that likely 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 United States before the end of the year, in addition to a $3,750 discount. Tesla is encouraging people to take delivery now, boosting fourth-quarter numbers, rather than waiting until Jan. 1 for new electric vehicle tax credits.
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Market rally analysis
The stock market rally had a bad day. The Nasdaq and Russell 2000 composite 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, broke below the 21-day line. The Dow Jones is also well below its 21-day, heading towards its 50- and 200-day lines.
All major indexes are at their lowest levels since Nov. 10, when they diverged from the October consumer price index. The Nasdaq is roughly where it was on the October 21 tracking day.
Most major stocks came under pressure, with some finding support and some not. There have been a few winners, like Lennar (The Internet Nordson (NDSN) on earnings, but these are the exception.
Megacap stocks such as Apple, Amazon and Tesla are in deep trouble. Microsoft’s 200 day line resistance is not a good sign. Nvidia stock and VanEck Semiconductors ETF falling below the 200-day line is definitely disheartening.
Is the market uptrend from the October 13 low to the December 13 high just a bearish rally that is coming to an end? It’s too early to tell. It is also possible that the market may rebound or is now trading sideways.
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What to do now
A choppy stock market rally is dangerous because it pulls investors into stocks that give buy signals and then immediately reverses lower.
But let’s say you’ve been buying on relative market weakness, like pullbacks on the 21-day line, over the past few weeks? Well, the indices are all undercutting their recent lows. So even these trades are likely to be in trouble unless you take quick profits.
Investors should probably reduce their exposure, if only because individual stocks aren’t performing.
The silver lining? Few stocks are giving buy signals as the market clearly weakens. It is easier to stay in this environment.
But stay engaged. A few good days could reignite the market rally and bring stocks back into buy zones. So fire up your screens and update your watchlists. Look for stocks holding key support levels, such as the 21-day or 50-day lines. Some recent big winners are now moving back to the 50 day/10 week lines.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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