90% chance the new rally will do so after a fierce sell-off

Dow Jones futures fell overnight, along with S&P 500 and Nasdaq futures, amid low earnings and advice from Cisco Systems. The stock market rally sold off hard on Wednesday, as a large Target (TGT) The profit loss has raised major concerns for retailers, related sectors and the wider economy amid high inflation and weakening demand.


Wednesday’s strong selloff comes just after major indices stage a day’s run to confirm the new stock market rally, sending bearish signals.

After closing, Cisco Systems (CSCO) and Sociedad Quimica y Minera de Chile (SQM), or SQM, declared income. Cisco’s earnings slightly beat fiscal third-quarter views, but revenue lagged and the networking giant also guided lower for the current fourth quarter. CSCO stock plunged 13% overnight. Arista Networks (ANET) and other related stocks also fell sharply.

SQM wins are still pending after hours for the fertilizer and lithium game. SQM stock edged up 0.4% to 90.21 in Wednesday’s regular session after hitting 93.14 intraday, briefly exceeding a buy point of 90.97.

The video embedded in this article discusses Wednesday’s market selloff and analyzes TGT stock, Northrop Grumman (NOC) and Broadcom (AVGO).

Earnings target Bad news for retail

Target profit fell 41%, much more than expected. The retailer blamed shipping costs as well as consumers dropping TVs and other discretionary items. Target is seeing margin pressures throughout the current fiscal year. It happened a day later walmart (WMT) missed the EPS and was guided lower, citing higher costs for goods, shipping and labor. At the time, investors might have thought or hoped Walmart’s woes were company-specific, but Target’s results signaled a much broader problem.

The target stock fell 25% to 161.61. Walmart fell 6.8% after falling 11.4% on Tuesday. Both are at their lowest since 2020.

If Walmart and Target are struggling in the current economic climate, it can’t be good for other discounters, retailers and the general.

dollar tree (DLTR) plunged 14.4% after slipping 3.2% on Tuesday. DLTR stock had held up well, but fell below its 50-day mark on Tuesday and crashed to its 200-day line. Wholesale Costco (COST) lost more than 12%, having already rallied and fallen below key moving averages in recent weeks. Dollar Tree and COST report next week.

best buy (BBY), which reported early Thursday, fell 10.5% to a two-year low.

Trucking Companies, Tesla, Apple Stock Hit

JB Hunt Transportation Services (JBHT) sold 9%, falling near its 10-week line. As consumer demand weakens, trucking companies could see weaker demand and struggle to pass on soaring diesel fuel prices.

Apple stock fell 5.6% to 140.82, a six-month closing low, as Target’s warning on consumer discretionary spending added to fears for tech titan Dow Jones. Over the past few weeks, iPhone contract maker Foxconn and Taiwan semiconductor (TSM), which manufactures chips for Apple (AAPL) and many others warned of weak demand for smartphones. AAPL stock is on course for an eighth consecutive weekly loss.

Tesla stock fell 6.8% to 709.81, the lowest close since August. While weaker consumer discretion could in theory hurt demand for Tesla’s high-priced electric vehicles, overall auto production is so weak that supply remains the overriding factor. You’re here (TSLA) is under pressure with other popular growth names, as well as Shanghai factory production issues and CEO Elon Musk Twitter (TWTR) takeover saga. Twitter stock fell 3.8% to 36.85, a two-month low and even further below Musk’s $54.20 buy price.

Additionally, the S&P 500 ESG index has launched Tesla, largely on corporate culture issues, prompting more angry tweets from Musk.

Meanwhile, the US National Highway Traffic Safety Administration is investigating a Tesla Model S crash earlier this month that killed people, possibly involving Autopilot. NHTSA is investigating dozens of autopilot-related crashes.

Tesla vs. BYD: Which rising EV giant is the best buy?

Dow Jones Futures Today

Dow Jones futures fell 0.4% from fair value. S&P 500 futures fell 0.5%. Nasdaq 100 futures fell 0.7%. Cisco stock is a component of the Dow Jones, S&P 500 and Nasdaq. Several other networking and hardware stocks also lost ground.

The 10-year Treasury yield fell 2 basis points to 2.87%.

US crude oil prices fell 1%.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live

Stock market rally

The stock market rally opened sharply lower and continued to decline on Wednesday.

The Dow Jones Industrial Average fell 3.6% in trading on Wednesday. The S&P 500 index slipped 4%. The Nasdaq composite plunged 4.7%. Small cap Russell 2000 fell 3.5%.

US crude oil prices reversed after modest gains to fall 2.5% to $109.59 a barrel. Gasoline futures fell more than 5%.

The 10-year Treasury yield fell 8 basis points to 2.89%.

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) slipped 3.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 3.9%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 4%. ETF VanEck Vectors Semiconductor (SMH) fell 4.8%.

The SPDR S&P Metals & Mining ETF (XME) fell 4.15% and the Global X US Infrastructure Development ETF (PAVE) fell 3.6%. The US Global Jets ETF (JETS) fell 3.4%. The SPDR S&P Homebuilders ETF (XHB) fell 5.5%. ETF Energy Select SPDR (XLE) and ETF Financial Select SPDR (XLF) lost 2.75%. The SPDR healthcare sector fund (XLV) fell 2.6%

The SPDR S&P Retail ETF, which includes Target and Walmart stocks as major constituents, plunged 8.3% to its lowest since December 2020.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 4.4% and ARK Genomics ETF (ARKG) fell 4.7%. TSLA stock remains the No. 1 position among Ark Invest ETFs.

Five best Chinese stocks to watch now

Market rally analysis

When you get a brand new car, you don’t expect any issues when you leave the lot. But if you do, you might have a lemon. On Tuesday, major indices staged a tracking day, confirming the new stock market rally.

But on Wednesday, the major indexes fell, giving up all of Tuesday’s big gains and more.

A weaker consumer and rising business costs are a grim combination for retailers and manufacturers of discretionary goods. With consumer spending accounting for more than two-thirds of the US economy, the risks of a hard landing for the economy are growing as the Fed attempts to reduce inflation. Aggressive rate hikes by the Fed will cause severe pain. But the alternative, letting inflation stay high, clearly affects demand as well.

Reasons for the sell aside, the technical action is clear. All day tracking doesn’t work, and Wednesday’s action was a bearish signal.

Major indices closed below their FTD lows. Eric Krull, co-author of “The Lifecycle Trade,” says his research shows that when major indices do this, there’s a 90% chance the market rally will ultimately fail.

The odds could be even worse in this case. The Dow Jones and S&P 500 forged fresh 52-week closing lows on Wednesday, with the Nasdaq not far off.

However, the market rally is still in effect until the major indices undermine the start of their rally, in this case the May 12 intraday lows. The Dow Jones in particular is about to break lower. Another leg down for the S&P 500 would almost certainly push the benchmark into a bear market, joining the Nasdaq.

Look on a weekly chart of the major indices, and it’s hard to see the rally. The Dow, S&P 500 and Nasdaq are all on track to extend long weekly losing streaks.

Time the Market with IBD’s ETF Market Strategy

What to do now

Wednesday’s sell-off is why it’s a good idea to slowly enter a recently confirmed stock market rally. This was especially true of the current market rally, with major indices below key moving averages and few stocks in position.

Investors who bought stocks or ETFs on Wednesday’s FTD are likely to cut back or exit.

Keep working on your watchlists. Focus on stocks with high relative strength. But a strong RS line is not a green light to buy a stock, especially in a weak market.

The sell-off in DLTR stock on Wednesday — and Apple over the next few weeks — shows how well stocks can hold up, until they don’t. So wait for a stock to give a buy signal in a strong market and be ready to exit.

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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