US Shares In Like A Lion, Out Like A Lamb

Dow Jones futures fell slightly overnight, while S&P 500 futures and Nasdaq futures lost some ground. For the second straight in a row, the major indexes tried to rebound but were pulled lower with sharp losses, extending the stock market correction.

The Dow Jones Industrial Average fell 0.9% in Thursday’s stock market trading. The S&P 500 index gave up 1.1%. The Nasdaq composite slumped 1.3% after rising as much as 2.1% intraday. The small-cap Russell 2000 tumbled 1.8%.

The 10-year Treasury yield was roughly flat at 1.83%. February crude oil futures edged down 0.1% to $86.90 a barrel as the contract expires. March crude futures dipped 0.3% to $85.55.

Bulls do not welcome surprises easily, but investors who rushed to buy the morning rebounds of Wednesday and Thursday have been subject to aching losses. Netflix and CSX reported earnings Thursday night. Oilfield services giant Schlumberger is on tap Friday morning.

Dow Jones insurance giant Travelers and ocean shipping firm Matson moved into buy range, at least intraday, on strong earnings news. Both are in leading groups now, with peers also acting well. Their relative strength lines are hitting at least recent highs. It is hard to have conviction about any stock in a correction, particularly with the market staging unwelcome reversals.

Tesla stock edged up 0.1% on Thursday to 996.27, but reversed from intraday highs of 1,041.66. Tesla continues to hit resistance near its now-slipping 50-day moving average and is holding up much better than most high P-E stocks. There’s a bright side to TSLA stock pausing now.

After plunging from its early January highs, Tesla stock tried to race higher again. But it is unusual for a stock to run straight up from a vertical dive. But as time has passed, that’s less of a concern. As a practical matter, Tesla earnings are on tap next week. That could be a catalyst for big gains, but also big losses.

While many beaten-down growth stocks rebounded Thursday, Peloton Interactive crashed 24% as reported halted production of its connected bikes and treadmills due to weak demand.

Netflix earnings easily beat views while subscriber growth narrowly topped analyst views but missed the company’s own guidance. The streaming giant, which just announced monthly fee increases, also gave weak subscriber guidance for Q1.

NFLX stock plunged 19% in overnight action, signaling a drop to its worst levels since June 2020. Shares reversed lower for a 1.5% decline on Thursday. Since hitting a record 700.99 on Nov. 17, Netflix stock has fallen sharply.

Disney stock fell solidly, as the Netflix subscriber guidance does not bode well for Disney+ and other Disney streaming properties. DIS stock could hit its worst levels since late 2020.

Dow Jones futures fell 0.2% vs. fair value, with DIS stock weighing on blue chips. S&P 500 futures slumped 0.4%. Nasdaq 100 futures sank 0.8%, as NFLX stock led the decline.

Overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session. The stock market correction continued to hit new lows, as the major index reversed lower for a second straight session.

In like a lion, out like a lamb was the phrase describing the stock market’s corrections have led to strong opens and weak closes. On Thursday, the key averages rebounded even more, but began to fade by late morning, with the retreat intensifying during the afternoon.

The Nasdaq composite is starting to lose sight of the 200-day line. The tech-heavy index is already test its next resistance area, slightly undercutting its early October lows. Those October lows essentially correspond to Nasdaq highs back in February 2021.

The big-cap Nasdaq 100 fell below its 200-day line, along with the Dow Jones industrial average. The S&P 500 index is closing in on that long-term level while undercutting December lows on Thursday The Russell 2000 is headed due south, hitting a fresh 52-week low.

A few stocks look interesting, such as Matson or TRV stock. But it is hard to feel confident about any stock in a market correction.

At this point, a market bounce; one that actually holds through an entire session, would not be a surprise, as various indicators suggest the indexes are oversold, though the Netflix stock crash is pushing futures lower.

But when stocks do have a solid session, that does not mean a strong market rally is underway. The problem is that traders could catch many dead-cat bounces, suffering a bunch of little losses or a few big ones. Anyone who bought at the Wednesday or Thursday intraday highs is likely sitting on modest to solid losses.

Some observers believe that it is better to wait a few days to see if big institutions support a new rally attempt. A follow-through day is needed confirm a new uptrend. Not all confirmed market rallies work, but odds are much better if traders can afford to wait.

The Dow Jones Industrial Average has retreated and given back earlier strong gains in today’s stock market and reversed sharply lower in the final hour of trading. The Nasdaq composite and S&P 500 also turned decidedly into the red territory. The indexes appear to be continuing a recent pattern of strong opens followed by weak closes.

At the close, the Dow Jones industrials traded down 0.9%, gutting gains of over 1%. The Nasdaq composite and the S&P 500 fell 1.3% and 1.1%, respectively. The Russell 2000 small-cap index sank 1.8%. Early data showed volume was running higher on the Nasdaq and lower on the NYSE versus the close on the prior US session on Wednesday.

The indexes attempted to rebound on Thursday after this week’s heavy selloff but weakened substantially into the market close. Wednesday’s session pushed the Nasdaq composite down more than 10% off its highs. A drop of this size generally qualifies as an intermediate-term correction. IBD changed the market outlook to in correction earlier in the week.

Furthermore, the market is showing signs of distribution, including trading higher at the open, then selling off into the close.

Given current market conditions, most investors are in favour of taking a defensive position and raising cash. Now is not the time to be aggressively buying stocks, but market engagement is still key to watch the indexes daily for signs of support and accumulation.