Stock market indexes struggled in the first half of Wednesday's session after weak price action in Asia and Europe. Volatility surged premarket when the Nasdaq 100 broke the low hit before Fed Chair Powell's softened his policy stance last week.
Meanwhile, GameStop's earnings report after the bell should signal the long-awaited demise of the meme stock era.
The Dow Jones Industrial Average was flat heading into the lunch hour while the S&P 500 shed 0.2%. Tech stocks underperformed, dropping the Nasdaq composite around 0.5%. The Russell 2000 small-cap index attracted a little interest, lifting 0.1%.
Volume on the Nasdaq and the NYSE fell compared to the first half on Tuesday.
The 10-year Treasury note yield fell more than 1% to 3.46%.
Crude oil rolled over to a 52-week low, down nearly 2% to $72.70 per barrel. Asian and European markets fell less than 1%.
There were few economic reports.
Mortgage applications fell 1.9% for the week while revised Q3 productivity rose a better-than-expected 0.8%. Q3 unit labor costs rose a smaller-than-expected 2.4%.
The Fed releases October consumer credit data at 3 p.m. ET.
Bitcoin stumbled overnight, dropping 1.5% to the $16,800 level. Coinbase traded within two points of November's all-time low of 40.61.
Stop Losses Hit After Steady Selling
Tape readers have been closely watching the lows stuck before Powell's address because many traders tend to place stop losses around these levels. The Russell and S&P 500 violated those lines on Tuesday. The Nasdaq 100 followed suit this morning, completing the bull trap.
According to Investopedia, "a bull trap is a false signal, referring to a declining trend in a stock, index, or other security that reverses after a convincing rally and breaks a prior support level. The move 'traps' traders or investors that acted on the buy signal and generates losses on resulting long positions."
Resilient early action suggests that short-term downside may be limited, but bulls will need to step up to avoid further downside.
Stock Market: Big Banks Stoke Growth Fears
The S&P Bank ETF has lost more than 5% in the last week, highlighting fears that over-aggressive rate hikes will trigger a recession.
Dow Jones component JPMorgan Chase CEO Jamie Dimon warned about declining growth Tuesday but the bank's stock held up relatively well, thanks to a Morgan Stanley upgrade.
Bank of America wasn't as fortunate, dropping 4.3% Tuesday after admitting its investment bank business was down 55% to 60% this quarter.
Bankers weren't the only ones sounding the alarm. Also on Tuesday, PepsiCo announced the layoffs of hundreds of workers, while Union Pacific and Dow member Walmart CEOs talked about cautious consumers and nervous business partners.
Meme Moment
Meme stock GameStop traded lower by 3.5%.
The retailer reports third-quarter earnings after Wednesday's closing bell, when analysts expect another losing quarter. GME stock hasn't booked a profit since the 6 cents it earned back in 2020, and it isn't likely to get better any time soon. Losses are now forecast to grow to $1.37 per share in 2023.
GME stock fell back into the 20s in January and has tested horizontal support five times in the last 10 months. Volatility has shrunk during this period, signaling the likely end of the meme-stock mania.
Even the most die-hard Reddit traders have moved on to greener pastures at this point, and aren't likely to come back.
Cheap Stocks To Buy And Watch: 5 To Observe Right Now
Stock Market Movers And Shakers
PayPal Holding surged 3.3% after telling an UBS conference it is on track to grow revenue approximately 9% this year. The fintech also noted that EPS was tracking ahead of estimates. The rally could mark the low of a 78-day consolidation pattern.
IBD 50 component Flex pulled back from an all-time high for a fifth day and bounced near the top of the 5% buy zone from a 19.73 buy point. The zone has tightly converged with the 21-day exponential moving average. Flex stock was higher by 0.5%.
This looks like a bull flag pullback within an active uptrend, supported by strong technical ratings across the board and a solid growth outlook.
Pinterest fell 0.5% in Wednesday's stock market action. The social media platform has entered into a long-term cooperation agreement with activist fund Elliott Investment Management. The deal includes the appointment of Elliott senior portfolio manager Marc Steinberg to the board.
Welltower shed 5.2% after Hindenburg Research highlighted the health care and housing REIT as a short sale candidate.
Gun maker Smith & Wesson Brands crashed 16.1% to a two-year low, in another sign then political tensions are easing after 2020's tumultuous election. The company reported October-quarter sales and earnings that missed estimates, according to FactSet.
Follow Alan Farley on Twitter at @msttrader.
