Dow Jones futures rose slightly early Friday, while S&P 500 futures edged higher and Nasdaq futures rose sharply. netflix (NFLX) surged on strong subscriber growth, with the energy giant SLB (SLB) on tap. ParentGoogle Alphabet (GOOGL) will cut 12,000 jobs as big tech layoffs continue.
The stock market rally retreated again on Thursday for a second straight day, with major indices testing or undercutting other key levels. The Dow Jones has turned negative for 2023.
New economic reports pointed to weaker economic activity, with one big exception: initial jobless claims hit their lowest level since last April. The bigger picture points to growing recession risks, but tight labor markets that keep the Federal Reserve hawkish.
Major stocks are retreating to varying degrees. Investors should wait to see if this pullback is temporary or something more serious.
Stock MELI, Medspace Holdings (MEDP), Axon Enterprise (AXONE), Vertex Pharmaceuticals (VRTX) and ExxonMobil (XOM) are names that have held up relatively well so far.
MEDP and Axon Enterprise shares are on the IBD ranking. MercadoLibre and XOM stocks are on the IBD 50. VRTX and SLB stocks are on the IBD Big Cap 20. GOOGL stock is on the IBD Long-Term Leaders list.
MercadoLibre (MELI) was the IBD share of the day on Thursday. VRTX action was Wednesday’s.
Dow Jones Futures Today
Dow Jones futures rose slightly relative to fair value. S&P 500 futures rose 0.3%. Nasdaq 100 futures rose 0.75%. NFLX and Google stocks give Nasdaq futures a boost.
The 10-year Treasury yield rose 3 basis points to 3.43%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Strong growth in Netflix subscribers
Netflix revenue was well below fourth quarter views, while revenue growth of 2% was in line. But Netflix subscribers increased by 7.66 million, far more than the 4.57 million expected. The streaming giant launched a low-cost, ad-supported subscription option on November 1. 3. Netflix no longer provides advice to subscribers.
Meanwhile, co-founder Reed Hastings stepped down as co-CEO to become executive chairman. Ted Sarandos will remain co-CEO, joined by Greg Peters, currently chief operating officer.
NFLX stock surged in premarket trading. Shares fell 3.2% to 315.78 in Thursday’s regular session.
Netflix subscriber growth is a positive sign for many other streaming games, including waltz disney (THAT), World Paramount (PARA), Discovery of Warner Bros. (WBD) and Roku (ROKU). But DIS stock, Roku and the rest made smart gains in extended action.
Google job cuts
Alphabet, the parent company of Google, will lay off 12,000 workers, or 6% of the workforce. That’s according to a memo from the company. This follows Microsoft’s plans to cut 10,000 positions, or 4.5% of staff, earlier this week, with Amazon.co.uk (AMZN), Salesforce.com (CRM) and many other tech giants are downsizing.
Late Thursday, Google announced it would defer 20% of bonus payouts until at least March.
GOOGL stock climbed solidly in premarket trading.
Google stock rose 2.1% to 93.05 on Thursday, topping the 50-day line for the first time since early December. The 50-day line has been a resistance zone for the internet giant since late 2021. Still, GOOGL stock remains far from its 200-day line.
Eli Lilly stumbles upon FDA’s rejection of Alzheimer’s disease
The FDA has rejected Eli Lilly’s fast-track approval request for its Alzheimer’s disease treatment donanemab, seeking more data. Eli Lily (LLY) fell slightly overnight. biogenic (BIIB), which recently published positive results on a similar Alzheimer’s disease drug, rose slightly ahead of the opeb.
SLB Earnings Top
SLB’s earnings and revenue slightly topped quarterly views. SLB, formerly known as Schlumberger, said in the statement that “we believe the macro backdrop and market fundamentals that underpin a strong multi-year bull cycle for energy remain very compelling.” Oil&Gas-Field Services is ranked No. 1 of IBD’s 197 industry groups.
SLB stock climbed 2% early Thursday. The shares edged up 0.4% to 57.38 on Thursday, after hitting the top of a recent low. But SLB is slightly extended from a buy point of 53.97 handles.
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Stock market rally
The stock market rally extended Wednesday’s losses into Thursday morning, rebounding somewhat in the afternoon but fading again at the close.
The Dow Jones Industrial Average fell 0.8%. in Thursday’s stock trading, as well as the S&P 500 index. The Nasdaq composite sank almost 1%. The small cap Russell 2000 was down 1%.
Solar stocks were the big losers on growing concerns about the residential solar market.
US crude oil prices rose 1.1% to $80.33 a barrel, continuing to trade just around the $80 level. Gasoline futures climbed 2.9% to a two-month closing high.
The 10-year Treasury yield edged up 3 basis points to 3.4%.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell nearly 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.8%. ETF VanEck Vectors Semiconductor (SMH) lost 2.45%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) slipped 3.2% and ARK Genomics ETF (ARKG) lost 3.3%.
The SPDR S&P Metals & Mining ETF (XME) fell 0.2%, as did the US Global Jets ETF (JETS). SPDR S&P Homebuilders ETF (XHB) fell 3%. ETF Energy Select SPDR (XLE) rose 1.2%, the No. 1 XOM stock. 1 holding and SLB also a major component. The Financial Select SPDR ETF (XLF) slipped 1.2%. The SPDR healthcare sector fund (XLV) edged up 0.2%.
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Stocks to Watch
MELI stock edged up 0.4% to 1,072.74, coming to a halt this week after a big run to start 2023. The Latin American e-commerce and payments giant is just under a point buy of 1,095.44, but really needs a handful to let the major averages catch up. MercadoLibre stock has held up very well but is using some depth on any handle to shake up weak holders.
MEDP stock fell 1.5% to 228.84, near an official buy point of 235, according to MarketSmith analysis. Stocks broke above the 50-day line on January 1. 10, which offered early entry. Now Medpace’s stock could use a handful.
XOM stock tested its 50-day line but closed 0.6% higher at 111.32. Stocks are not far off a buy point of 114.76 from a flat base.
VRTX stock edged down 0.6% to 307.94, still holding above its 50-day line. Stocks broke above the 50-day line on Tuesday, offering early entry at the time. Investors should wait to see if biotech can break through Tuesday’s high at 312.35. The official flat-based buy point is 324.85.
AXON stock climbed 1% higher to 184.06, continuing to work on a handful on a cup basis that would lower the buy point slightly from the current 193.95. Axon, which makes Tasers, body cameras and digital storage for law enforcement, allowed early entry Jan. 2. 9 if it moved above the 50 day line.
Market rally analysis
After Wednesday’s sharp downside reversal, the stock market rally showed further weakness. While the major indices rebounded from their late morning lows, they faded at the close.
The S&P 500 index, after falling back below its 200-day line in the previous session, fell below its 50-day line on Thursday. The Nasdaq also undercut its 50-day line, but rebounded from its 21-day line. The Russell 2000, which nearly hit its late 2022 highs on Wednesday morning, tested its 200-day mark on Thursday, but closed above that line.
The Dow Jones experienced its third straight significant decline, testing the January 1 low. 6 days follow-up. Closing below the FTD low would be a bearish sign for a market rally, although the S&P 500 and Nasdaq are well above their January level. 6 down so far.
Indices closing lows offer hope that the current pullback is just a healthy pause, leaving major stocks to forge handles and other new buying opportunities. But it could be more serious. Going below Thursday’s lows would be worrisome.
Some leading stocks, such as Axon, MercadoLibre and MEDP, are holding up quite well. But others suffer greater losses. Deere (DE), which flashed an early entry on Tuesday morning, undermined the bottom of its flat base on Thursday.
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What to do now
With the pullback from the market rally, many top-tier stocks are paring their recent gains or even slipping below entries.
Investors should wait for new purchases for now. On the contrary, they want to reduce their modest exposure, if only because of the action in individual holdings.
Despite some recent losses, a large number of stocks have built up. A good day or two could significantly improve the technical picture of the stock market rally and provide plenty of new buying opportunities. So get your watchlists ready.
But just because a stock is taking place doesn’t mean it will break out or trigger a buy signal, or that such a move will work.
Earnings season seems to be hitting the market with individual stocks and the overall uptrend at a tenuous time. Stay safe.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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