Dow Jones futures fell early Friday, along with S&P 500 futures and Nasdaq futures, though earnings of JPMorgan, Wells Fargo and Citigroup topped the views. The stock market rally had a rough Thursday, as highly valued growth stocks like Tesla, Roblox and ServiceNow led the recession.
X
The Nasdaq fell to its worst close since October as the S&P 500 fell below key support.
Taiwan Semiconductor (TSM) erupted on Thursday with strong earnings and guidance. TSM stock gapped up 5.3% at 139.19, clearing an 11-month cup-with-handle base with 135.60 buy points, according to MarketSmith analysis. But the shares closed in low sessions. Chip-equipment makers Applied Materials (AMAT), Lam Research (LRCX) at ASML (ASML) rallied on TSM’s strong capital spending plan, but they erased gains or flipped lower
Growth stocks have struggled in general, especially those whose names are unprofitable or those with triple-digit price-earnings ratios, including Tesla (TSLA), Roblox (RBLX), Service Today (NOW) and Datadog (DDOG), along with many ARK style stocks.
Tesla fell 6.75% on Thursday, back below its 50-day line. RBLX stock fell 10%, back below its 200-day line. NOW the stock has fallen 9.1% to its lowest level since June. DDOG stock fell 7.65% at its worst close since late August.
Boeing (BA), Worm (CAT) at Honeywell (HON) tried to keep the Dow Jones positive. BA stocks and Honeywell recovered their 200-day lines and broke trend lines during the day, momentarily flashing aggressive entries before retreating. CAT stock emerged after pausing a few days following the gap above the 200-day line.
Bank Revenues
part of the Dow Jones JPMorgan Chase (JPM), Wells Fargo (WFC) at Citigroup (C) reported better-than-expected fourth-quarter earnings early Friday, starting with bank earnings as finances stood high in the new year.
JPM stock fell nearly 4% before opening. The shares are lower at the traditional flat-base point of purchase. Wells Fargo, slightly extended, rose 2%. Citigroup, still trying to recover, lost nearly 4%.
Tesla and Nvidia stock is on the IBD Leaderboard. AMAT stock is on SwingTrader. ASML stock and ServiceNow are in IBD Long-Term Leaders. Tesla stock and AMAT are at IBD 50.
The video embedded in this article discusses Thursday’s market sell-off and examines TSM’s stock, Simon Property Group (SPG) and JPMorgan.
Dow Jones Futures Today
Dow Jones futures fell 0.7% compared to fair value, with JPM stocks acting as a drag. The S&P 500 futures were down 0.7% and the Nasdaq 100 futures were down 0.9%.
The 10-year Treasury yield rose 2 basis points to 1.73%. US crude prices have risen.
Note that overnight action on Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they review actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally opened higher, became mixed, then turned into a growth-led sell-off to close near session lows.
The Dow Jones Industrial Average fell 0.5% in stock market trading on Thursday after being up for most of the session. The S&P 500 index fell 1.4%, with ServiceNow performing the worst. The Nasdaq composite fell 2.5%. The small-cap Russell 2000 lost 0.8%.
The 10-year Treasury yield fell for the third consecutive day to 1.71% on Thursday. The Fed Gov. Lael Brainard, speaking at his confirmation hearing to become the Fed’s vice chairman, said inflation was his top priority. This is the latest evidence that even dovish Fed members are now in favor of tightening monetary policy.
Crude futures fell 0.6% to $ 82.12 per barrel as natural gas prices fell after rising in the previous session.
Major ETFs
Of 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) fell 4.2%. Both NOW stocks and Datadog are IGV holdings. The VanEck Vectors Semiconductor ETF (SMH) sank 1.7%, with TSM stocks, AMAT, LRCX and ASML all significant components.
The SPDR S&P Metals & Mining ETF (XME) was down 1.6% and the Global X US Infrastructure Development ETF (PAVE) was down 0.3%. The US Global Jets ETF (JETS) climbed 2.2%, with Delta Air Lines (DAL) revenue and guidance lifting airline. The SPDR S&P Homebuilders ETF (XHB) was down 0.4%. The Energy Select SPDR ETF (XLE) is down 0.5%. The Financial Select SPDR ETF (XLF) gave up 0.3%, with stocks of JPM, Wells Fargo and Citigroup all known holders. Health Care Select Sector SPDR Fund (XLV) contributed 1.55%
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) fell 5.4% to a new 18-month low and the ARK Genomics ETF (ARKG) fell 4.4% to a 19-month low. Tesla stock remains the leading holder among ARK Invest ETFs. ARKK also owns some stock of RBLX.
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Market Rally Analysis
The stock market rally is facing its first test since rising from lows on Monday, and it’s not going to be good right now. After reaching resistance at their 10-day line on Wednesday, major averages struggled on Thursday.
The Nasdaq composite led the sell-off, falling to a three-month closing low just above its 200-day moving average.
The S&P 500 has fallen below its 21-day and 50-day lines. The Dow Jones advanced in the morning but with broad market selling, the blue-chip index also dropped. However, the S&P 500 and Dow Jones are just days away from being at record highs.
The Russell 2000 also lost ground, falling further from its 50-day and 200-day lines.
The losers slightly outscored the NYSE winners, but led the Nasdaq.
The software still looks scary and the high value of growth stocks. Tesla’s stock has fallen sharply, but at least it’s holding close to its 50-day line within a base. Software leaders like DDOG and ServiceNow have fallen below the moving average.
Some chip stocks remain well -maintained, but are prone to intraday reversals when they start to build momentum. Meanwhile, large leaders like Nvidia (NVDA) is back near recent lows. Marvell Technology (MRVL), which remains above its 50-day line, fell 7.4% to undercut that key level.
In addition to energy and finance stocks, manufacturing companies such as Boeing, Caterpillar and Honeywell are showing signs of life. Chemical makers like it Ashland (ASH) is setting up.
Ford Motor (F) and other traditional vehicle makers such as Toyota (TM) at Stelantis (STLA) is behaving well. So are shipping companies, except for most trucking companies.
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What to do now
A mixed, volatile stock market rally is deceptive. The sectors of the real economy are well maintained. But a growth stock sell-off could drag down the entire market. That’s what happened on Thursday. Or, investors can cycle back to growth and out of finance or energy.
As MarketSmith products coach Harold Morris told IBD Live on Thursday, position expansion is key to this volatile and uncertain market. Also buying near 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 is also nothing wrong with reducing the exposure or retention of all or most of the money, awaiting real market strength. The Nasdaq is stuck below its 21-day and 50-day lines, along with many stocks. That’s not a friendly atmosphere.
When bulls and bears are fighting for market dominance, road avoidance makes a lot of sense.
Read The Big Picture daily to stay in sync with 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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