Dow Jones futures fell overnight along with S&P 500 futures and Nasdaq futures. The stock market rally sold off on Thursday, with the S&P 500 and Nasdaq meeting resistance at key levels and turning sharply lower. Treasury yields jumped to fresh three-year highs as Fed Chair Jerome Powell said keeping inflation in check was “absolutely essential” and announced a big rate hike early next month.
X
The ugly market reversal serves as a warning to investors to reduce their already modest exposure. Be wary of early morning moves, breakouts, and especially growth stocks.
On the plus side, airlines had a strong session with United Airlines (UAL) rise to forecasts for a profitable Q2 and 2022. American Airlines (AAL) also raced higher on earnings and forecast but trimmed gains.
Tesla (TSLA) jumped to big gains even as TSLA stock closed near session lows. Nukor (NUE) and steel dynamics (STLD) also made intraday highs.
Growth stocks were big losers. Fortinet (FTNT) broke above a buy point shortly after the Thursday open but has reversed to the downside. Expedia (EXPE) broke a trend line on Thursday morning but then reversed lower.
Mining stocks have been big winners over the past year. But they fell like Alcoa (AA) and Freeport-McMoRan (FCX) both warned of higher costs and lower production. This followed weak production forecasts from several other big miners this week.
merits
After graduation, manufacturer of surgical robotic systems Intuitive Surgery (ISRG) and Snapchat parent snap (SNAP) reported.
Intuitive Surgical receipts slightly outperformed Views. ISRG stock fell slightly overnight. Stocks bottomed in late January but are still recovering. Still, Intuitive Surgical’s earnings report can provide insight into trends in post-Covid medical procedures for other companies, such as: Edward’s Biological Sciences (EW).
Snap missed earnings and revenue views even as users rose solidly. SNAP stock initially plummeted, then rallied after hours before plunging earnings. Stocks have fallen since a recovery in early April fizzled.
early friday, American Express (AXP), Cleveland Cliffs (CLF), HCA healthcare (HCA) and Newmont Mining (NEM) are available.
Stocks from Tesla, Nucor, Newmont Mining and EW are on the IBD leaderboard. FTNT shares are Long-Term Leaders on IBD. Tesla and CLF shares are on the IBD 50. Fortinet was IBD stock of the day on Wednesday while EXPE was Thursday’s stock.
The video embedded in this article discussed Thursday’s negative market reversal and analyzed Tesla stock. Marsh & McLennan (MMC) and AvalonBay (AVB).
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Fed Chair Powell: Rate hike ‘quick’
Fed Chair Jerome Powell said on Thursday that controlling inflation is “absolutely essential”. He added that a 50 basis point hike was “on the table” for the May 3-4 meeting and said that “slightly quicker steps” on rate hikes were warranted.
Fed Chair Powell was only reiterating what investors already knew. Markets have priced in Fed rate hikes of half a point for the next few meetings, along with the start of balance sheet trimming.
The 10-year government bond yield rose 8 basis points to 2.92%, the highest since late 2018.
Dow Jones futures today
Dow Jones futures are down from fair value. S&P 500 futures fell 0.1%. Nasdaq 100 futures lost 0.1%.
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 came in like a lion but went out like a lamb.
The Dow Jones Industrial Average fell just over 1% in trading on Thursday. The S&P 500 index fell 1.5%. The Nasdaq Composite plunged 2.1%. Small-cap Russell 2000 was down 2.3%.
US crude prices rose 1.6% to $103.79 a barrel.
ETFs
Among the best ETFs, Innovator IBD 50 ETF (FFTY) slumped 3.5%, while Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 3.1%. The VanEck Vectors Semiconductor ETF (SMH) is down 2.7%.
ARK Innovation ETF (ARKK) plunged 5% and ARK Genomics ETF (ARKG) plunged 4.9%, reflecting more speculative story stocks. Both are heavily down this week and are nearing their March lows. Tesla stock remains Ark Invest’s #1 ETF.
The SPDR S&P Metals & Mining ETF (XME) was down 6.2% with FCX shares, Alcoa and Newmont Mining taking notable positions. The Global X US Infrastructure Development ETF (PAVE) fell 1.4%. NUE stock is the top position in the PAVE ETF, which also owns shares in Steel Dynamics, Cleveland-Cliffs and Alcoa.
The US Global Jets ETF (JETS) was up 2.8%, with American Airlines and United Airlines being the top two constituents. SPDR S&P Homebuilders ETF (XHB) fell 1.3%. The Energy Select SPDR ETF (XLE) slipped 3.2% and the Financial Select SPDR ETF (XLF) fell 1.6%. Health Care Select Sector SPDR Fund (XLV) down 1.1%
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Tesla stock
Tesla shares rose as high as 1,092.22 on Thursday morning after a blowout earnings report was released late Wednesday. But as the market rally turned south on Thursday, TSLA stock retreated. Shares closed up 3.2% at 1,008.78, near session lows. Breaking its opening spike keeps Tesla stock in the 1,000 area.
Even at the intraday highs, Tesla stock didn’t look ready for action. It was well extended from its 50-day moving average, according to MarketSmith analysis, but was still well below a buy point of 1,152.87 cups with handles. It didn’t break a trendline on Thursday, so there was no early entry.
On the upside, Thursday’s high may now serve as an early entry. A longer hold that qualifies as its own base within the large, chaotic consolidation would allow the large averages to catch up.
Analysis of the market rally
Strong opens and weak closes are hallmarks of a bad market, not a robust stock market rally.
The Nasdaq rose 1.9% in the morning and peeked above its 50-day moving average but reversed and posted a sharp loss. But forget the 50 days. The Nasdaq has not closed above its 10-day moving average since April 4th.
The S&P 500 started retaking its 200-day moving average on Thursday but ended below its 50-day moving average. The Dow Jones, which closed above its 200-day moving average on Wednesday, briefly surpassed its March highs before also falling back.
The Russell 2000 fell back below its 50-day moving average. Market breadth, which improved somewhat in late March, is back at lows.
And all of this came in higher volume on the Nasdaq and NYSE than the previous session.
Meanwhile, Thursday’s major sell-off in mining stocks was notable. Perhaps this is just another cleanup for these names that have been volatile in their rise. But the litany of companies warning about costs and production doesn’t bode well.
Fertilizer stocks sold off hard, but mostly to around their 21-day moving averages.
Medical stocks generally look resilient despite Thursday’s losses. Energy stocks reversed lower on Thursday but still look strong. Defense stocks fell sharply, but that could mean a healthy pullback for many charts. Several defense companies will report earnings next week. Travel supplies have risen sharply. Airline stocks could take a pause. Hotel stocks reversed lower. EXPE stock was particularly disappointing, signaling a buy signal before selling off.
Fortinet stock tried to buck the growth trend but staged a really ugly turn.
Most other growth stocks have failed to disappoint and are threatening to undercut their recent lows. NVIDIA (NVDA) did just that, falling to a six-month low on Thursday.
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What now
This is not a healthy market rally. As major indices retreat from key levels, investors should consider reducing their already modest exposure. Tesla shares closed near lows, and Fortinet and Expedia reversals point to the danger of buying stocks, particularly growth stocks, in the early minutes.
In a divided market rally, investors should focus on the leading sectors. But you can’t count on them to stay strong. The sell-off in Alcoa stock and other miners points to the importance of taking some partial profits. It’s also a reminder not to focus too much on one particular part of the market.
While the market rally could improve, hope is not a strategy. The Nasdaq has undercut last week’s lows and is closer to its March low than its March high.
Over the next two weeks, investors will receive the bulk of the gains as well as the Fed’s next rate hike. That could make for good or bad market clarity. For now, the upcoming headlines mean a lot of uncertainty.
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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