Dow Jones futures fell overnight along with S&P 500 futures and particularly Nasdaq futures Netflix (NFLX) crashed due to an unexpected drop in subscribers. Tuesday’s stock market rally showed strong gains in major indices as government bond yields continued to rise and energy prices fell.
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The S&P 500 reclaimed a key level, but many of Tuesday’s big winners were down stocks. The market rally remains under pressure and divided. Investors should keep exposure low and focus on leading sectors.
Netflix subscribers are falling
Netflix revenue surpassed views while revenue lagged. But the real news is that Netflix subscribers fell by 200,000 in the first quarter, the first drop in more than a decade. Analysts had expected earnings of around 2 million. And for the second quarter, Netflix sees its subscriber count drop by another 2 million.
Subscription price hikes and growing streaming competition from the likes of Walt Disney (DIS) and HBO Max parent Warner Bros. Discovery (WBD) are taking their toll on Netflix, which already has very high market penetration in US homes.
Netflix has signaled it will crack down on “password sharing” to attract more paying customers. It’s also open to a cheaper, ad-supported model.
NFLX stock plunged 26% in extended trading, signaling a move below the March 2020 coronavirus low and nearing the September 2019 lows. Shares initially peaked gradually in November 2021. Netflix stock plunged 22% on Jan. 21, driven by a weak subscriber forecast that turned out to be still overly optimistic.
DIS stock fell 4.5% overnight, threatening a fresh 52-week low. WBD stock declined slightly.
Tesla Earnings Loom
Tesla gains loom on Wednesday night. On Tuesday, Tesla Shanghai resumed production after a three-week shutdown. But a return to full power will likely take several weeks. Tesla shares rose 2.4% on Tuesday to 1,028.15 as it works at a 1,152.97 cup with handle buy point.
Twitter Deal Latest
Meanwhile, TWTR shares fell 4.7% to 46.16 a day after rising 7.5%. Tesla CEO Elon Musk is reportedly looking for partners who can help him with this Twitter (TWTR) Takeover Offer. According to the New York Post, Musk is willing to raise another $10 billion to $15 billion on top of the money he’s spent on his current 9.1% stake in TWTR. Musk has offered Twitter $43 billion, or $54.20 per share, but there hasn’t been a formal offer. Black Stone (BX) and Brookfield Wealth Management (BAM) are not interested in funding a Twitter deal, the Financial Times reported.
Stocks in, near buy zones
Meanwhile, travel inventories continued to rise as the US government and airlines dropped in-flight mask requirements, giving airliners another boost. Marriott International (MAR) just moved out of a buy zone. notification budget (CAR) is approaching a buy point.
Manufacturers of medical devices Edward’s Biological Sciences (EW) and Strings (SYK) flashed early buy signals and is nearing the official breakouts.
warehouse worker prologue (PLD) rose on strong Q1 results and 2022 guidance as real estate REITs outperformed.
Tesla (TSLA) and EW shares are on the IBD leaderboard. MAR stock and Tesla are on the IBD 50.
The video embedded in this article shows Extra Space Storage, Edwards Lifesciences and CAR stockpiles.
Dow Jones futures today
Dow Jones futures lost 0.1% from fair value as Disney stock took its toll. S&P 500 futures lost 0.4%. Nasdaq 100 futures slipped 0.9% with NFLX stocks leading techs down.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to 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 had a strong bounce on Tuesday, closing near session highs. The Dow Jones Industrial Average rose 1.5% in trading on Tuesday. The S&P 500 Index gained 1.6%. The Nasdaq Composite rose 2.15%. Small-cap Russell 2000 is up 2%.
US crude prices fell 5.2% to $102.56 a barrel. Natural gas futures slipped over 8%.
The 10-year government bond yield rose 5 basis points to 2.91%, hitting a new three-year high. The two-year yield shot up 14 basis points to 2.6%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) was up 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) is up 2.75%. The VanEck Vectors Semiconductor ETF (SMH) is up 2.1%.
SPDR S&P Metals & Mining ETF (XME) was modestly up 0.1% and Global X US Infrastructure Development ETF (PAVE) was up 2.1%. The US Global Jets ETF (JETS) rose 2.8%. The SPDR S&P Homebuilders ETF (XHB) is up 3.8%. The Energy Select SPDR ETF (XLE) was down 0.8% and the Financial Select SPDR ETF (XLF) was up 1.4%. The Health Care Select Sector SPDR Fund (XLV) is up nearly 1%.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) was up just over 4% and ARK Genomics ETF (ARKG) rallied 1.9%. Tesla stock is ARK Invest’s #1 ETF.
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travel stocks
Travel stocks have risen sharply over the past four sessions thereafter Delta Airlines (DAL) topped Q1 views and said higher tariffs had not hurt demand. The end of the mask requirement on flights is another bonus.
MAR stock rose 3.1% to 188.78, hitting a record high. Marriott stock is now expanding from the 179.40 Cup with Henkel buy point, according to MarketSmith analysis. The shares could still fall back into the 5% pursuit zone. But investors had chances to buy MAR shares in the previous three sessions. The relative strength line has been hitting new highs for a few days.
Hilton worldwide (HLT) is currently in a buy zone.
CAR shares rose 7.1% to 285.35. On November 2, the meme-style car rental giant exploded after strong gains. But discounting that crazy day, investors could consider the Avis stock chart as a base with a cup with a handle and a buy point of 299.43. Avis stock cleared an early entry into a short trendline within this level on Tuesday, although volume was very light. CAR stock also remains well above its 10-week moving average. Ideally, CAR stock would pause, with its grip becoming a proper base as the moving averages try to catch up.
Medical products
EW stock climbed 4.4% to 124.52, trading just below a 125.21 cup with Henkel buy point. The shares broke the downtrend at this level and offered an early entry. EW stock was added to the leaderboard on Tuesday and was the IBD stock of the day on Monday.
SYK stock rose 4.9% to 271.66, reclaiming its 50-day and 200-day moving averages and nearing a handle buy point of 274.23. But like Edwards Lifesciences, the orthopedic implant specialist broke a handle’s downtrend and offered an early entry. SYK stock has been consolidating since last September and has been moving sideways for a year. Stryker earnings are due April 28th.
shock wave medicine (SWAV) is also working on a good buy point, with several other medical products, devices and systems manufacturers showing solid gains on Tuesday.
The REIT stuff
PLD shares rose 4% to 169.56, rebounding from its 21-day moving average after reporting strong results and guidance ahead of the open. That’s now extended from a 160.95 cup-with-handle buy point. But investors could use a recent pullback as an alternative high handle. That would offer a buy point at 170.96 or an early entry around 166.48.
REITs typically struggle with rising Treasury yields. But real estate REITs offer solid earnings growth in a tough market, coupled with decent dividends.
Analysis of the market rally
The stock market rally showed a struggle on Tuesday. The S&P 500 moved back above its 50-day moving average and its 21-day exponential moving average. The Dow rebounded from its 50-day level to its 200-day level.
The Nasdaq recovered near its 50-day mark. Getting the Nasdaq above its 50-day moving average and the S&P 500 above its 200-day moving average would be an important move. After that, the major indices would need to surpass their late March highs, which would likely coincide with the Nasdaq retaking the 200-day mark.
A tech-driven market rally despite a further rise in US Treasury yields is positive, but that has not been the trend in recent weeks. How will stocks react to a 3% handling of 10-year yield? The October 2018 peak of 3.25%, a 12-year high, is not far away.
Stock futures are pointing to some weakness overnight, though it’s unclear if that will spread beyond Netflix stocks, Disney, and the streaming world.
Many of Tuesday’s big winners were below their 200-day moving average. That might explain why there were few realizable stocks.
The broader commodities sector remains a bright spot, with energy stocks holding up well despite Tuesday’s sharp drop in oil and natural gas prices.
Medical devices are doing well and are beginning to expand beyond drugmakers and health insurers. Travel is an emerging leader, although the sector has long made headlines. REITs are doing well.
With a few exceptions, traditional growth stocks continue to struggle. Tesla stock is looking good, but its chart is messy on the way to earnings. Cybersecurity names seem interesting.
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What now
Again, don’t get too excited about a good day in a weak market. The market rally remains under pressure and divided. Investors should continue to focus on leading areas of the market. You might consider taking positions in travel or medical devices, for example, to diversify holdings.
But overall exposure should remain modest. Until the market rally shows sustained, broad-based strength, investors should not be aggressive. Keep working on watch lists, looking for stocks that are rallying or bullishly pulling back. This can help you spot up-and-coming leaders before they leave.
Read The Big Picture every day to keep up to date 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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