The ugly market reversal serves as yet warning to investors to reduce already-modest exposure. Be wary of early morning moves, breakouts and especially growth stocks.
On the upside, airlines had a strong session, with United Airlines soaring on forecasts for a profitable Q2 and 2022. American Airlines also raced higher on results and guidance, but pared gains.
Tesla jumped on big earnings, though TSLA stock closed near session lows. Nucor and Steel Dynamics also came off intraday highs.
Growth stocks were big losers. Fortinet broke out past a buy point soon after Thursday's open, but reversed lower. Expedia cleared a trendline Thursday morning, but then reversed lower.
Mining stocks have been big winners over the past year. But they tumbled as Alcoa and Freeport-McMoRan both warned of higher costs and lower production. That followed weak production guidance from several other big miners this week.
Earnings
After the close, robotic surgical system maker Intuitive Surgical and Snapchat parent Snap reported.
Intuitive Surgical earnings slightly beat views. ISRG stock fell solidly overnight. Shares bottomed in late January but are still recovering. Still, the Intuitive Surgical earnings report may provide insight into post-Covid medical procedure trends for other companies, such as Edwards Lifesciences.
Snap missed profit and revenue views, though users rose solidly. SNAP stock initially tumbled, then surged in after hours trade before pulling back to little changed. Shares have tumbled since a rebound fizzled out in early April.
Early Friday, steelmaker Cleveland-Cliffs and American Express beat views, while oil services giant Schlumberger just edged past estimates. CLF stock jumped and Schlumberger rose modestly before the open, while AmEx edged lower. Newmont Mining fell short, with NEM stock falling. HCA Healthcare missed on earnings and guided low, sending HCA stock plunging.
Tesla, Nucor, Newmont Mining and EW stock are on IBD Leaderboard. FTNT stock is on IBD Long-Term Leaders. Tesla and CLF stock are on the IBD 50. Fortinet was Wednesday's IBD Stock Of The Day while EXPE stock was Thursday's.
The video embedded in this article discussed Thursday's negative market reversal and analyzed Tesla stock, Marsh & McLennan and AvalonBay.
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Fed Chief Powell: Hike Rates 'Quickly'
Fed chief Jerome Powell said Thursday that controlling inflation is "absolutely essential." He added that a 50-basis point hike is 'on the table' for the May 3-4 meeting, saying that "moving a little more quickly' on rate hikes is appropriate.
Fed chief Powell only reinforced what investors already knew. Markets have been pricing in half-point Fed rate hikes for the next few meetings, along with the start of balance sheet cuts.
The 10-year Treasury yield spiked 8 basis points to 2.92%, the highest since late 2018.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures lost less than 0.1% and Nasdaq 100 futures rose 0.2%. All have improved from modest overnight losses.
The 10-year Treasury yield edged down to 2.91%, nearing the 3% level.
Crude oil prices fell more than 1%.
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 came in like a lion but went out like a lamb.
The Dow Jones Industrial Average sank just over 1% in Thursday's stock market trading. The S&P 500 index retreated 1.5%. The Nasdaq composite tumbled 2.1%. The small-cap Russell 2000 sold of 2.3%.
U.S. crude oil prices rose 1.6% to $103.79 a barrel.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF slumped 3.5%, while the Innovator IBD Breakout Opportunities ETF gave up 2.5%. The iShares Expanded Tech-Software Sector ETF retreated 3.1%. The VanEck Vectors Semiconductor ETF fell back 2.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF plunged 5% and ARK Genomics ETF 4.9%. Both are down hard for the week and nearing their March lows. Tesla stock remains the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF dived 6.2%, with FCX stock, Alcoa and Newmont Mining notable holdings. The Global X U.S. Infrastructure Development ETF gave up 1.4%. NUE stock is the top holding in the PAVE ETF, which also owns stakes in Steel Dynamics, Cleveland-Cliffs and Alcoa.
U.S. Global Jets ETF added 2.8%, with American Airlines and United Airlines the top two components. SPDR S&P Homebuilders ETF fell 1.3%. The Energy Select SPDR ETF skidded 3.2% and the Financial Select SPDR ETF gave up 1.6%. The Health Care Select Sector SPDR Fund sank 1.1%
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Tesla Stock
Tesla stock jumped as high as 1,092.22 Thursday morning following a blowout earnings report late Wednesday. But as Thursday's market rally turned south, TSLA stock pulled back. Shares closed up 3.2% to 1,008.78, near session lows. If you cut off their opening spike, Tesla stock remains in range around the 1,000 level.
Even at the intraday highs, Tesla stock didn't look actionable. It was well extended from its 50-day line while still being significantly below a 1,152.87 cup-with-handle buy point, according to MarketSmith analysis. It didn't break a trendline Thursday, so there was no early entry.
One positive: Thursday's high could now serve as an early entry . A longer handle, one that qualifies as its own base within the large, messy consolidation, would let the major averages catch up.
Market Rally Analysis
Strong opens and weak closes are hallmarks of a bad market, not a robust stock market rally.
The Nasdaq, up 1.9% in the morning to peek above its 50-day line, reversed for a sharp loss. But forget about the 50-day. The Nasdaq hasn't closed above its 10-day line since April 4.
The S&P 500 started Thursday reclaiming its 200-day line, but ended below its 50-day line. The Dow Jones, which closed above its 200-day line on Wednesday, briefly topped its March highs before also pulling back.
The Russell 2000 knifed back below its 50-day line. 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 vs. the prior session.
Meanwhile, the big sell-offs in mining stocks on Thursday was notable. Perhaps this is just another shakeout for these names, which have been volatile in their ascent. But the litany of companies warning on costs and production is not a good sign.
Fertilizer stocks sold off hard, but mostly to around their 21-day moving averages.
Medical stocks generally look robust, despite Thursday's losses. Energy stocks reversed lower Thursday, but still look strong. Defense stocks retreated sharply, but that could offer a healthy pullback for many charts. Several defense firms report earnings next week. Travel stocks have run up, a lot. Airline stocks could be due for a break. Hotel stocks did reverse lower. EXPE stock was especially disappointing, flashing a buy signal before selling off.
Fortinet stock tried to buck the growth trend, but staged a truly ugly reversal.
Most other growth names weren't in a position to disappoint, and are threatening to undercut their recent lows. Nvidia did just that, tumbling to a six-month low on Thursday.
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What To Do Now
This is not a healthy market rally. With the major indexes reversing lower from key levels, investors should consider reducing already-modest exposure. Tesla stock closing near lows, and the Fortinet and Expedia reversals point to the danger of buying stocks in the opening minutes, especially growth names.
In a divided market rally, investors should focus on the leading sectors. But you can't count on them remaining strong. The sell-off in Alcoa stock and other miners point to the importance of taking some partial profits. It's also a reminder not to be too concentrated in a particular part of the market.
While the market rally could start to improve, hope isn't a strategy. The Nasdaq has undercut last week's lows and is closer to its March bottom than its March peak.
In the next two weeks, investors will get the bulk of earnings, as well as the Fed's next rate hike. That could provide market clarity, for good or ill. For now, the upcoming headlines represent a great deal of uncertainty.
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