Dow Jones futures fell slightly on Thursday night, along with S&P 500 futures and Nasdaq futures, as Treasury yields continued to rise. The rise in the stock market suffered heavy losses on Thursday after Fed chief Jerome Powell did not appear to be overly concerned about the rising yields from the treasury, and gave no hints about a policy reversal to cool long-term rates.
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Broadcom (AVGO) earnings after the report.
The Dow Jones, S&P 500, Nasdaq and Russell 2000 broke below the lowest lows on Thursday, which was the last victim of a bad stock market. Treasury yields jumped.
Tesla sold hard, while Taiwan Semiconductor (TSM) dived below its 50-day line. Nvidia (NVDA) and ServiceNow (NOW) dropped to long-term support levels. Tesla stock, perhaps the most important stock in recent years, still has a long way to go before it reaches clear support levels.
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Google Parent Alphabet (GOOGL), Microsoft (MSFT), Vale (VALE), Five below (FIVE) and Polaris (PII) are five stocks that hold relatively well, close to potential buying points.
But there were few safe havens in the stock market on Thursday. Mining stocks, which were big winners amid a shift to the names of ‘real economy’, were big losers. Freeport McMoRan tumbled 6.6%. Rising Treasury spreads are good news for finance JPMorgan Chase (JPM) decreased by 1.5%. Flagstar Bancorp (FBC), which flashed an early buy signal on Wednesday and broke out briefly on Thursday morning, reversed lower for a 4.1% loss.
Fed Chief Powell Spurs Market Moves
Powell, head of the Fed, said in a speech on Thursday afternoon that recent bond action had caught my attention, adding that we would be concerned about disorderly conditions in the financial markets. But he did not say that the recent swing of stocks and bonds met the threshold. Nor did he provide clear guidance on what the Federal Reserve could do in response. Specifically, Powell did not seek to revive ‘Operation Twist,’ in which the Fed buys long-term debt and sells short-term debt, trying to lower long-term rates.
The next Fed meeting is on March 16 and 17, so policymakers can then act or provide more guidance on the moves they can make.
More generally, Powell said monetary policy remains very accommodating. He also did not seem worried about higher inflation. Policymakers have indicated they want more inflation, and are even willing to see long-term price increases with the highest 2%, with the revival of jobs.
Consumer inflation remains tame, but commodity prices, from crude oil to copper to agricultural goods, have soared. Crude oil futures rose 4.2% to 63.83 a barrel on Thursday as OPEC + agreed to keep the current production cut at least until April.
Broadcom earnings
Broadcom’s earnings were above expectations and the technology giant provided modestly higher guidance for revenue from the current quarter. AVGO share has declined modestly in expanded trading. Broadcom fell 4% on Thursday, underlining its 50-day line. The chip giant has outperformed many other technology leaders, but is now starting to hold the market.
Nvidia, Taiwan Semiconductor, Microsoft and Tesla are on IBD Leaderboard. Microsoft shares are on IBD long-term leaders. Google shares are on the IBD Big Cap 20. Google, Nvidia and AVGO shares are on the IBD 50. Vale shares were the IBD stock of the day on Thursday. FBC was Wednesday’s Stock Of The Day, while FIVE stocks were back on February 25th.
Dow Jones Futures Today
Dow Jones futures lost 0.4% to fair value. S&P 500 futures fell 0.5%. Nasdaq 100 futures fell 0.65%, while Broadcom and Tesla acted as a pull.
Ten-year treasury yields rose to 1.58% overnight after rising to 1.54% in Thursday’s regular session.
At 08:30 ET, the Labor Department will release the employment report in February. Does Wall Street want to see a weak job opportunity at this point to limit Treasury returns?
Remember that overnight actions in Dow futures and elsewhere do not necessarily translate into stocks in the next regular session.
Join IBD experts while analyzing stocks in the stock market on IBD Live.
Coronavirus News
Coronavirus cases worldwide reached 116.19 million. The deaths from Covid-19 reached 2.58 million.
Coronavirus cases in the US reached 29.51 million, with deaths above 533,000.
Stock market rally
The rise in the stock market was up and down in the morning and dropped lower after the remarks of Fed chief Fed chief. The major indices did fall back from lows within the day, but closed in the lower half of their ranges.
This is an important day to read The Big Picture.
The Dow Jones industrial average lost 1.1% in stock market trading, eventually giving way after the Nasdaq afternoon began after the Powell afternoon sale. The Dow closed just below its 50-day line. The S&P 500 index fell 1.3%, well below the 50-day high. The Nasdaq composite fell 2.1% to a fresh 2021 low. The Russell 2000 lost 2.7%, and was right on its 50 days.
The ten-year treasury yield rose by 7 basis points to 1.54%. Although last week’s intraday peak was not above 1.6%, it is the highest settlement for the 10-year yield since February 2020.
Taiwan Semi fell 5.9% to 115.59 and cut through its 50-day line. ServiceNow shares declined by 4.9% and Nvidia by 3.4%, both of which had recently hit lows but found support in their 200-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 5.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 5.75%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.8%. Microsoft and NOW shares are important IGV shares. The VanEck Vectors Semiconductor ETF (SMH) rose 4.85%, with major components from TSM, Broadcom and Nvidia.
Ark Innovation ETF reflects more speculative story stocks with 5.5% and Ark Genomics ETF 5.8%.
Tesla Stock
Tesla shares sold 4.9% to 621.44, breaking last week’s low and setting a new intraday low of 600. It is now 31% below the January 25 high of 900.40. Maybe Tesla will find support in around 600. But if that does not apply, the next level of support from TSLA could be the highest level of its previous base around 500. The moving average of 200 days is now around 472.
TSLA share fell 3% in overnight trading.
Why is Tesla important for the stock market?
Tesla’s share was a big winner in 2020 and still boasts a massive market capitalization of $ 593 billion.
It is the leader in the fast-growing space for electric vehicles, which was a red-hot market sector last year. Now EV shares are selling hard.
More generally, Tesla is the symbol of highly regarded or speculative growth names. (Unlike many speculative names, Tesla does boast strong profit growth – aided by a few special factors – but analysts’ price targets do make heroic assumptions about its long-term growth and market share.)
If all goes well with Tesla, its market weight and iconic status are a catalyst for valuable growth.
As the largest stock in ARK Investments’ ETFs, a big sell-out in Tesla shares is bad news for Cathie Wood’s ETFs. As other major ARK shares also tumble and investor withdrawals increase, ARK may be forced to liquidate many of its positions, though not necessarily Tesla. Since many investors use ARK Funds, which announces many of its purchases and sales every day, it can cause much greater losses.
Bulls can argue that Tesla shares had much bigger corrections in the incredible run of end 2019, and that is absolutely correct. As long as it does not really crash – perhaps only after astonishingly bad company news – investors’ enthusiasm is likely to remain strong in the stock and perhaps also speculative growth.
Shares to watch
Google shares rose 1.1% to 2,033.93, maintaining support at its 21-day exponential moving average. It still has a rising entry of 2145.24, just above the everyday high. The relative strength of GOOGL shares is at a record high. Unlike many story stocks, Google is more consistent in terms of earnings growth and stock performance. In a hot bull market, the Google stock may be buzzing. But in a less frothy rise in the market, this FANG stock may be performing well.
Microsoft shares decreased 0.4% to 226.73. This is slightly below the 50-day moving average. A 232.96 buy point is still valid for MSFT shares. If you get above the level, it will probably also break a downward trend and get above the 21-day line. However, Microsoft’s RS line is lower.
Falling stock fell 2.1% to 17.50, just above its 50-day line and stood much better than other miners on Thursday. Vale has a buying point of 18.57 cups with handles.
Five Below sank 4.8% to 183.19, closing the cents below the 50-day line. FIVE shares are in a somewhat messy flat base with a buying point of 198.20.
According to MarketSmith’s analysis, Polaris shares fell 0.2% to 122.51, on a flat basis with a 129.10 buy point. The flat base forms part of a base-on-base formation, which is particularly weak in weak markets. The RS line is at a 52-week high, making it a MarketSmith blue dot special on a weekly chart. The ATV manufacturer benefits from an outdoor push, as well as its EV plans.
What to do now
In the current market environment, investors need to play defense. If you are still in a number of growth stocks, it is past time to reduce the exposure. As Thursday’s action showed, the real economy may remain better, but that does not mean it will not decline as well.
Investors need to be substantially cash.
Build your watch list and focus strongly on stocks with rising or high relative strengths. Keep in mind that stocks may hold for a while and then eventually give way. As early as Monday, the TSM stock bought early signals. So, just because Google rose on Thursday does not mean that it will lead if market conditions are really favorable.
Follow Ed Carson on Twitter at: @IBD_ECarson for stock market updates and more.
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