Stocks dived, than pared losses Thursday as global markets and commodities prices responded to a possible shift in stance at the Federal Reserve and rising Covid-19 infections. Earnings news sent Synopsys, Macy’s and dLocal to big early gains. Nvidia lagged after its earnings report. And a sharp drop in oil prices sent Chevron to the bottom of the Dow Jones today.
The Dow industrials carved a brief 175-point decline, then quickly narrowed losses to 0.2%. The S&P 500 eased to a 0.1% loss. The Nasdaq Composite trimmed its losses to 0.35%, cutting below support at its 50-day moving average. Losses among small caps outpaced the overall market, with the Russell 2000 down 0.8%.
Synopsys (SNPS) traded highest on the Nasdaq 100 and S&P 500. China-based names packed the bottom of the Nasdaq 100. Selling was heavy among commodities-based names, with oil stocks down hard, while steelmakers Nucor (NUE) and Cleveland Cliffs (CLF) dropped 3% and 4.9% respectively. Ore miner Freeport McMoRan (FCX) dropped 4.3%.
Synopsys rallied more than 6% after a narrow fiscal third-quarter beat. Shares ended Wednesday in buy zone above a 283.19 cup-with-handle base, following a light-volume breakout in July. The buy zone for SNPS stock runs to 297.35. The stock is an IBD Long-Term Leader.
Nvidia (NVDA) gave up premarket gains and slipped 0.3% in early action, despite more than a half-dozen analysts raising price targets on the stock after its second-quarter earnings report late Wednesday. The graphics chip leader has shaped a short cup-with-handle base with a 207.43 buy point, according to MarketSmith analysis.
Macy’s (M) jumped 6%, and BJ’s Wholesale Club Holdings (BJ) gained 3.3% after early Thursday earnings reports. New issues Robinhood Markets (HOOD) and Victoria’s Secret (VSCO) dropped about 9% each.
DLocal (DLO) spiked 27% after reporting a 186% revenue gain and a 319% year-over-year rise in total payment volume for its second quarter. The early move scored a breakout past a 57.10 entry, but the volatile young stock is high risk.
Dow Jones Today: Cisco Gains, Chevron Slides
On the Dow Jones today, Cisco Systems (CSCO) reversed premarket losses and rose 1.1%, as at least four analysts raised price targets on the stock following its second-quarter earnings report. Chevron (CVX) also fell hard among the industrials, down 1.6% as oil prices tumbled below $65 a barrel.
JPMorgan (JPM) and Goldman Sachs (GS) were also falling, more than 1.5% apiece, as financials continued to react to Wednesday’s news from the Federal Reserve.
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Minutes from the Federal Open Market Committee’s July meeting released Wednesday afternoon showed several policymakers leaning to begin tapering the Fed’s $120 billion in monthly bond purchases by year-end. Some thought the process should start in early 2022. Some Fed officials worried about inflation remaining hot for longer, in part due to the ongoing bond buying program. The delta variant was seen as a downside risk for economic growth but also could extend supply chain woes and thus inflation.
Jobless Claims Improve, Philly Fed Index Disappoints
The Labor Department reported that first-time applications for unemployment assistance fell to 348,000 in the week ended Aug. 14 — the lowest level since the start of the pandemic. The number marked a fourth-straight weekly decline, down from 377,000 claims in the prior week and well below projections for a downtick to 360,000 fresh claims.
The index for the Philadelphia Federal Reserve’s August Manufacturing Business Outlook Survey slumped to 19, down from July’s 21.9 reading. Economists had projected an increase in the region’s manufacturing and an August reading of 25.
Analyst Actions: Bill Holdings, Illumina
IBD 50 stock Bill Holdings (BILL) gained 1% on an analyst upgrade. Jefferies raised the back-office automation leader to buy, from hold, and boosted its price target to 250, from 155. Bill stock ended Wednesday in a buy zone on a rebound from support at its 10-week moving average.
Genetic screening tools maker Illumina (ILMN) toppled 4%, after SVB Leerink downgraded the stock to market perform, from outperform, and dropped its price target to 425, from 510. Illumina ended Wednesday in a buy range, after a July breakout from a cup-with-handle base.
Vital Signs: Oil Dives, Bond Yields Ease, Bitcoin Steady
Crude oil prices took a steep dive early Thursday, after a five-day selloff accelerated on Wednesday. Prices came under increasing pressure from concerns for the impact on demand from rising Covid infections, bolstered on Wednesday by a jump in gasoline inventories reported by the U.S. Energy Information Administration.
West Texas Intermediate futures dropped 3% Thursday, undercutting the psychologically important $65 level, to trade just above $63 a barrel. WTI prices are down nearly 14% so far for August, the steepest decline since March 2020, and tracking toward their first monthly decline in five months.
The 10-year Treasury yield backed off to 1.24%, after settling just above 1.27% on Wednesday. Yields are down more than 14% since the start of August, and headed for a third-straight monthly decline. Falling yields indicate buying activity in bonds, which are a safe haven and tend to reflect capital moving out of stocks. The 10-year yield touched its high for the year, just above 1.76%, in early April.
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Bitcoin was relatively stable, down about 1% and trading around $44,611. The cryptocurrency had swung as high as $45,986 and as low as $43,990 over the past 24 hours, according to Coindesk. Bitcoin touched a high above $64,829 in mid-April.
5 Breakout-Ready Stocks To Watch
Tracking five of IBD’s top stocks to watch this week, Century Communities (CCS) dropped 1.5% in early trade Thursday. Shares are trading below a 72.60 buy point in a cup-with-handle base. A five-day decline has left the stock testing support at its 50-day moving average. The Colorado-based builder carries a 96 Composite Rating from IBD, ranking it the No. 1 stock in the residential homebuilders industry group.
Arch Capital Group (ACGL) ended a six-day advance with a 0.5% slip on Wednesday. That left the stock well within a buy zone, above a 41.38 entry in a 15-week flat base. Shares are aiming to extend their rally to a seventh day. The buy zone tops out at 43.45.
Chipmaker On Semiconductor (ON) had spiked 15.9% in the first week of August, breaking out past a 44.69 buy point in a 16-week cup base. The stock has since slipped back just below that buy point and is testing support at the chart’s 21-day exponential moving average. The base’s buy range runs to 46.92.
Shipping giant Matson (MATX) is working to add a fourth week to its rally. Shares gained 0.9% on Wednesday, rising just enough to kill the stock’s effort to shape a possible handle. That leaves the base’s buy point at 79.15.
Industrial chemicals supplier Element Solutions (ESI) on Wednesday broke below support at its converged 21-day and 50-day moving averages. The stock’s flat base with a 24.80 buy point remains intact, but the move below support shifts the stock to a back burner for now on the watchlist.
China Markets Tumble, Europe Under Pressure
Markets in Hong Kong and Shanghai tumbled after regulators floated proposed new regulations vs. online-based companies, and after warnings from Tencent Holdings (TCEHY) during its quarterly report on Wednesday. The Shanghai Composite fell 0.6%. Hong Kong’s Hang Seng Index tanked 2.1%. In Japan, Tokyo’s Nikkei 225 took a 1.1% hit.
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Among China gauges in the U.S. early Thursday, the iShares MSCI China ETF (MCHI) traded 2.1% lower in morning action. The Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) gained 0.4%. Technology tracker KraneShares CSI China Internet ETF (KWEB) downshifted 4% in early trade.
Europe’s markets were down sharply in afternoon trade. The FTSE 100 in London skidded 1.7% lower. The CAC-40 in Paris unraveled 2.4%, while Frankfurt’s DAX traded at a 1.7% loss. The SPDR Portfolio Europe ETF (SPEU) opened to a 1.4% loss. A three-day decline left the fund down 1.7% for the week through Wednesday. The ETF is testing support at its 21-day exponential moving average, just below a 44.06 buy point in a nine-week flat base.
Nasdaq, S&P 500, Dow Jones Today
The Dow industrials and the S&P 500 broke support at their 21-day exponential moving averages on Wednesday. This indicates the market is likely in for a moderately deeper pullback. The S&P 500’s previous four breaks of its 21-day line ended with the index finding support at its 50-day moving average. The S&P 500 closed on Wednesday 1.3% above its 50-day line.
The Dow has been messier. Its prior two breaks of 21-day support began pullbacks that dropped well below the benchmark’s 50-day level. A two-week drop in May measured 4.6%, top to bottom. Another two-week pullback in mid-June had a 4.4% span.
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The Nasdaq Composite may be more important to watch than the S&P 500 or the Dow Jones today. It has been this year’s slowest-running index, both for the month of August and year to date. And it is the first to fall on a test of its 50-day line, ending effectively flat against that line on Wednesday.
The Nasdaq’s track record at the 50-day this year has so far not been good. Two of three tests of the line ended in deeper declines. A three-week pullback below the 50-day in March declined 12.5% from high to low. A second three-week correction in April dropped 8.5%.
The market status remains in “Confirmed Uptrend.” And distribution days declined this week to three on the S&P 500, while holding steady at four for the Nasdaq. Neither number raises warning flags. It is natural for the market to adjust to the rising probability of a change of stance at the Fed. However, how far that adjustment might go, or how long it will last is not clear.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Monday’s Big Picture market commentary noted, that it remains a challenging environment for stock picking. That means it’s OK at this point to favor some cash. “Nibble at bullish setups when they arise, just keep your initial purchase small. The market will tell you soon enough if your timing was right.”
Find Alan R. Elliott on Twitter @IBD_Aelliott
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