The stock market rally had another rough session Wednesday, with the major indexes closing at session lows. The Dow Jones erased a solid gain, while the S&P 500 undercut a key level. The Nasdaq fell below 13,000.
Applied Materials (AMAT) briefly cleared a buy point while several chip-gear peers also rose on Intel (INTC) spending plans. But even they faded into the close. The current market environment has not been healthy for active investors. In fact, it’s the worst possible market.
In Las Vegas, the casinos have to pay out on slot machines enough to keep gamblers pulling that lever. If the slots never had winners, people would stay away. In the current market rally, breakouts are occurring, so that draws investors in. But those recent breakouts or early entries are struggling, with stocks either treading water, slowing falling to sell zones or suddenly plunging.
The general market has been moving sideways to lower for the past week, while rotating into and out of various sectors. That makes it hard to make any headway.
Tencent Music, China Stocks Plunge
Tencent Music Entertainment (TME) crashed 27%, plunging below its recent buy point and then its 50-day line. It was a bad day for China stocks, with Nio (NIO), JD.com (JD) and Tencent stock falling 10%, 5.3% and 5.1% respectively. Tencent Music’s parent, Tencent (TCEHY) topped earnings views early Wednesday. Vipshop (VIPS), which had been far above any buy point, plummeted 21%.
China has proposed requiring internet firms to house their customer data in a government joint venture. China’s central bank also is reducing liquidity boosts, a drag on stocks.
Highly valued growth stocks outside of China also were notable losers. Tesla (TSLA) fell 4.8%, continuing to slide from its short-term highs and key moving averages. CEO Elon Musk said that people can now buy a Tesla with Bitcoin, which fueled a brief morning rise in TSLA stock and the Bitcoin price. But Bitcoin also reversed lower.
The “good news” is that Tesla stock and most other big 2020 winners have been seriously damaged, so they shouldn’t have tempted investors in recent weeks.
AMAT Stock, Chip Gear Plays Rally
On the upside, some chip-equipment makers jumped on news that Intel will build two new plants in Arizona and become a chip foundry.
AMAT stock was a winner, hitting a record high of 125.80 intraday, clearing a short consolidation. But shares faded to session lows, though still up 4.1% to 121.10. That’s right back at a handle-like area. The relative strength line for Applied Materials hit a record high.
ASML (ASML), KLA Corp. (KLAC) and other chip-gear makers also advanced, though they gave up much to most of their morning gains. But Intel stock erased a 6% early gain to close down 2.3%. Taiwan Semiconductor (TSM), which faces a possible bigger threat from Intel, sank 5.2% to a 2021 closing low.
Meanwhile, commodity, infrastructure and travel plays bounced back somewhat. But investors may have already hit stop losses. Those who held on only recouped a portion of Tuesday’s losses, let alone the declines from the past week.
RH earnings and revenue topped quarterly views. RH stock jumped 8% overnight, signaling a move back above a buy point. RH stock fell 4.6% to 485.11 Wednesday. On Monday, RH cleared a 524.32 buy point from a two-month consolidation, but slipped back on Tuesday.
GrowGeneration earnings and guidance impressed investors. GRWG stock leapt 8% in overnight trade. GrowGeneration stock plunged 12% to 45.81 on Wednesday, undercutting its 50-day line.
KB Home earnings beat views while sales missed. KBH stock fell 3% in extended trade. Shares edged up 0.1% to 43.39 on Wednesday, not far from long-term highs.
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures climbed 0.3%. Nasdaq 100 futures advanced 0.2%.
The 10-year Treasury yield edged up to 1.63%.
Coronavirus cases worldwide reached 125.42 million. Covid-19 deaths topped 2.75 million.
Coronavirus cases in the U.S. have hit 30.70 million, with deaths above 558,000.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:40 PM ET 3/24/2021
The stock market rally showed a change in character, with the mixed picture turning broadly negative and technical damage spreading beyond techs and small caps.
The Dow Jones Industrial Average closed a fraction down in Wednesday’s stock market trading, erasing a solid morning gain. The S&P 500 index retreated 0.55%, below its 21-day exponential moving average. The Nasdaq composite tumbled 2%. The Russell 2000 sank 2.3% after Tuesday’s 3.6% dive.
This is an important day to read The Big Picture to stay in sync with the market direction and leading stocks and sectors.
The 10-year Treasury yield fell 2 basis points to 1.61%, falling for a fourth straight session after hitting a pandemic high last week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 5.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) tumbled 4.6%. On Monday, FFTY and BOUT were holding above their 50-day lines, but now are falling toward March lows.
SPDR S&P Metals & Mining ETF (XME) edged down 0.05%, erasing a strong intraday rebound. And Global X U.S. Infrastructure Development ETF (PAVE) rose 0.85%. U.S. Global Jets ETF (JETS) reversed lower to close off 1.2%, its fifth straight loss.
Market Rally Analysis
The Dow Jones erased a solid intraday gain to close just below breakeven and at session lows. The blue-chip index still hasn’t tested its 21-day line. The S&P 500 index is now below its 21-day line, with the 50-day line not far away.
The Nasdaq fell below its 21-day line, which is below its 50-day line. The tech-heavy index is now pointed toward its March lows.
The Russell 2000 hit resistance at its 50-day line and reversed sharply lower. While still above its March 5 intraday lows, the small-cap index had its worst close since Feb. 1. On Tuesday, the Russell plunged to close below its 50-day for the first time since Oct. 30.
What You Should Do Now
In Vegas, the house always wins. In a casino-style stock market rally, it’s been very hard to make money. A 5% gain may slip to 2%, then keep falling for a 5% loss. A 2% loss can quickly turn into 10% or more. While breaking even or losing on one trade, investors will be sucked into another breakout, where the odds are low.
Don’t continue the cycle. Investors should have minimal exposure to the market rally, reducing automatically over the past several days from selling positions. A couple of long-term winners or pilot positions are fine, though there’s nothing wrong with being entirely in cash.
At some point the stock market rally will strengthen or break down. If it’s the former, there will be plenty of opportunities then to take advantage of a clear uptrend. If it’s the latter, you don’t want to be heavily invested for that.
Stay engaged. The stock market rally could quickly signal it’s on stronger footing. So have your watchlists ready. Plenty of stocks in a variety of sectors would quickly look attractive in a healthier stock market rally.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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