Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, with JPMorgan and other bank earnings on tap. The stock market rally had a rough Thursday, as highly valued growth stocks such as Tesla, Roblox and ServiceNow led the retreat.
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The Nasdaq tumbled to its worst close since October while the S&P 500 slid below key support.
Taiwan Semiconductor (TSM) broke out Thursday on strong earnings and guidance. TSM stock gapped up 5.3% to 139.19, clearing an 11-month cup-with-handle base with a 135.60 buy point, according to MarketSmith analysis. But shares closed at session lows. Chip-equipment makers Applied Materials (AMAT), Lam Research (LRCX) and ASML (ASML) rallied on TSM’s strong capital spending plan, but they erased gains or reversed lower
Growth stocks struggled overall, especially highly valued unprofitable names or those with triple-digit price-earnings ratios, including Tesla (TSLA), Roblox (RBLX), ServiceNow (NOW) and Datadog (DDOG), along with many ARK-style stocks.
Tesla fell 6.75% on Thursday, back below its 50-day line. RBLX stock tumbled 10%, back below its 200-day line. NOW stock plunged 9.1% to its lowest level since June. DDOG stock skidded 7.65% to its worst close since late August.
Boeing (BA), Caterpillar (CAT) and Honeywell (HON) tried to keep the Dow Jones positive. BA stock and Honeywell reclaimed their 200-day lines and broke trend lines intraday, briefly flashing aggressive entries before pulling back. CAT stock popped after pausing for a few days following a gap above the 200-day line.
Bank Earnings
Dow Jones component JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) report fourth-quarter earnings early Friday, kicking off bank earnings as financials have stood tall in the new year.
JPM stock is still actionable from the 50-day line. Wells Fargo is slightly extended while Citigroup is trying to recover.
Tesla and Nvidia stock are on IBD Leaderboard. AMAT stock is on SwingTrader. ASML stock and ServiceNow are on IBD Long-Term Leaders. Tesla stock and AMAT are on the IBD 50.
The video embedded in this article discusses Thursday’s market sell-off and analyzes TSM stock, Simon Property Group (SPG) and JPMorgan.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures and Nasdaq 100 futures were little changed.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally opened higher, turned mixed, then turned into a growth-led sell-off to close near session lows.
The Dow Jones Industrial Average fell 0.5% in Thursday’s stock market trading after being up for much of the session. The S&P 500 index slumped 1.4%, with ServiceNow the worst performer. The Nasdaq composite skidded 2.5%. The small-cap Russell 2000 lost 0.8%.
The 10-year Treasury yield edged lower for a third straight day to 1.71% on Thursday. Fed Gov. Lael Brainard, speaking at her confirmation hearing to be Fed vice chair, said inflation is her top priority. It’s the latest evidence that even dovish Fed members now favor tightening monetary policy.
Crude oil futures dipped 0.6% to $82.12 a barrel while natural gas prices tumbled after spiking in the prior session.
Key ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) tumbled 4.2%. Both NOW stock and Datadog are IGV holdings. The VanEck Vectors Semiconductor ETF (SMH) sank 1.7%, with TSM stock, AMAT, LRCX and ASML all notable components.
SPDR S&P Metals & Mining ETF (XME) retreated 1.6% and Global X U.S. Infrastructure Development ETF (PAVE) edged down 0.3%. U.S. Global Jets ETF (JETS) climbed 2.2%, with Delta Air Lines (DAL) earnings and guidance lifting airlines. SPDR S&P Homebuilders ETF (XHB) dipped 0.4%. The Energy Select SPDR ETF (XLE) edged down 0.5%. The Financial Select SPDR ETF (XLF) gave up 0.3%, with JPM stock, Wells Fargo and Citigroup all notable holdings. The Health Care Select Sector SPDR Fund (XLV) gave up 1.55%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slumped 5.4% to a fresh 18-month low and ARK Genomics ETF (ARKG) tumbled 4.4% to a 19-month low. Tesla stock remains the top holding across ARK Invest’s ETFs. ARKK also owns some RBLX stock.
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Market Rally Analysis
The stock market rally is facing its first test since rebounding from Monday’s lows, and it isn’t going great so far. After hitting resistance at their 10-day lines on Wednesday, the major averages struggled on Thursday.
The Nasdaq composite led the sell-off, tumbling to a three-month closing low just above its 200-day moving average.
The S&P 500 skidded below its 21-day and 50-day lines. The Dow Jones advanced during the morning but with the broad market selling, the blue-chip index also turned lower. Still, the S&P 500 and Dow Jones are just a couple of strong days from being at record highs.
The Russell 2000 also lost ground, falling further from its 50-day and 200-day lines.
Losers slightly beat winners on the NYSE, but led decisively on the Nasdaq.
Software and highly valued growth stocks still look terrible. Tesla stock fell sharply, but at least it’s holding near its 50-day line within a base. Software leaders such as DDOG and ServiceNow have tumbled well below moving averages.
Some chip stocks are holding up well, but are prone to intraday reversals just when they start to build momentum. Meanwhile, big leaders such as Nvidia (NVDA) are back near recent lows. Marvell Technology (MRVL), which had been holding above its 50-day line, tumbled 7.4% to undercut that key level.
In addition to energy and financial stocks, manufacturing firms such as Boeing, Caterpillar and Honeywell are showing signs of life. Chemicals makers like Ashland (ASH) are setting up.
Ford Motor (F) and other traditional automakers such as Toyota (TM) and Stellantis (STLA) are acting well. So are shipping firms, with the notable exception of most trucking firms.
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What To Do Now
A mixed, choppy stock market rally is treacherous. Real economy sectors have held up reasonably well. But a growth stock sell-off could drag down the entire market. That’s what happened Thursday. Or, investors could rotate back into growth and out of financials or energy.
As MarketSmith products coach Harold Morris said on Thursday’s IBD Live, position sizing is key in this volatile, uncertain market. So is buying close to the 50-day line in most cases. Don’t make overly large bets on specific stocks or broad sectors, and look for early entries.
There’s also nothing wrong with staying all or mostly in cash, waiting for real market strength. The Nasdaq is stuck below its 21-day and 50-day lines, along with many stocks. That’s not a hospitable environment.
When bulls and bears are fighting for market dominance, staying out of the way makes a lot of sense.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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