Dow Jones futures fell modestly Thursday night, along with S&P 500 futures and Nasdaq futures. Roku (ROKU), Trade Desk (TTD) and Applied Materials (AMAT) headlined key earnings reports late Thursday.
XThe stock market rally again suffered sharp losses for growth stocks but came off lows. With the market looking shaky, investors should stress test their portfolios.
Roku earnings were a surprise, while Trade Desk and Applied Materials also beat views. Roku stock was little changed and Trade Desk fell slightly while AMAT stock popped overnight, near record highs.
GameStop Stock Frenzy Hearing
A congressional hearing on the GameStop stock frenzy took place Thursday. Aside from the spectacle of watching aging politicians ask questions about social media-fueled short-squeeze mania, the GameStop hearing seemed like old news.
GME stock fell 11% to 40.69. That's now 92% below its Jan. 28 peak of 383. Trading volume has plunged, especially daily dollar volume, as Reddit traders look to the next meme stock. The rise of GME stock was amazing while its fall was inevitable.
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Recent Breakouts Struggle
While the stock market rally is resisting a significant retreat for now, investors may want to be more defensive. One reason is that many recent buying opportunities aren't working, including Apple (AAPL), Nio (NIO), Datadog (DDOG) and Palantir Technologies (PLTR).
Apple stock has fallen more than 7%-8% from its 138.89 buy point, while also breaking below its 50-day and 10-week lines. Datadog stock also triggered sell signals, despite Thursday's gain. Nio stock is down more than 7%-8% from a base buy point or a later entry from breaking a downtrend. Palantir stock, which twice rallied significantly past a consolidation buy point, has plunged 34% over the past six sessions.
Some recent breakouts have succeeded, including Microsoft (MSFT), Google parent Alphabet (GOOGL), Nvidia (NVDA), ZoomInfo Technologies (ZI) and Wells Fargo (WFC), but they're generally holding up rather than powering higher. The risk-reward for new buys has been rather poor overall.
Apple, Microsoft, Nvidia, ZoomInfo and Wells Fargo stock are on IBD Leaderboard. Microsoft stock is on IBD Long-Term Leaders. Nvidia and Google stock are on SwingTrader. Google, Nvidia, Trade Desk and AMAT stock are on the IBD 50.
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Dow Jones Futures Today
Dow Jones futures were 0.35% below fair value. S&P 500 futures fell 0.4% and Nasdaq 100 futures sank 0.5%.
Treasury Secretary Janet Yellen late Thursday again made the case for the Biden stimulus plan.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Coronavirus News
Coronavirus cases worldwide reached 110.82 million. Covid-19 deaths topped 2.45 million.
Coronavirus cases in the U.S. have hit 28.52 million, with deaths above 505,000. U.S. coronavirus cases, hospitalizations and deaths are falling rapidly.
Novavax (NVAX) agreed to sell 1.1 billion coronavirus vaccine doses to COVAX, an initiative aimed at distributing vaccines around the world. COVAX is led by the Coalition for Epidemic Preparedness Innovations, the World Health Organization and Gavi, the Vaccine Alliance. Novavax's vaccine had high marks in interim data from a U.K. trial. But the FDA wants data from a late-stage U.S. trial before considering U.S. approval. Novavax stock jumped in late trading.
Stock Market Rally
The stock market rally suffered sharp morning losses for growth stocks. The major indexes closed well off intraday lows though many speculative, richly valued stock suffered significant damage.
The Dow Jones Industrial Average fell 0.4% in Thursday's stock market trading. The S&P 500 index lost 0.4%. The Nasdaq composite fell 0.7% after being down 1.8% intraday.
Apple stock dipped 0.9%, falling further below its 50-day and 10-week lines as its weekly loss swells to 4.2%. Microsoft stock edged down 0.2%, still in buy range. Google stock slipped 0.8%, near record highs.
Nvidia stock sank 0.5% to 593.16, above an official buy point of 587.76. It remains comfortably above the more-actionable entry of 660.07.
Nio stock lost 5% to 54.43, triggering sell signals for recent buy points. Shares did find support at the 50-day line and could offer a new entry again.
DDOG stock rose 3.2% on Thursday, but is still down 5.7% for the week. Datadog flashed sell signals Wednesday. PLTR stock sank 7%. Palantir looks severely damaged.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.5%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 1.7%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.3%, with MSFT stock the largest holding. The VanEck Vectors Semiconductor ETF (SMH) sank 1.1%, with NVDA stock a notable component.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Market Rally Analysis
The stock market rally is in a modestly weak trend, showing elements of a broad-based pullback as well as a sector rotation out of growth.
The Nasdaq fell intraday Thursday to just above its 21-day exponential moving average, where it began paring losses. The 21-day line was a key area of support for the Nasdaq during the April-November stock market rally as well as the current uptrend. Perhaps the Nasdaq will quickly rebound to record highs or trade sideways in its current range for a time. But at some point the composite will break through its 21-day decisively and test or break its 50-day line.
While the Nasdaq has had relatively modest losses this week, many leaders are down sharply. Nio stock is off 9.4%, Palantir 21%. Yalla (YALA), a Mideast-focused social media IPO that nearly tripled in 2021 by its Feb. 12 peak, has plunged 31% this week.
Stress Test Your Portfolio
Investors should make a game plan for their individual holdings, developing an exit strategy for scaling out of positions. But they should also plan for a general market pullback. Consider what happens to your overall portfolio. While most of your stocks may hold up individually, if they are all down 2%, 5% or more, that's going to hit your portfolio, especially if you're on margin.
So stress test your portfolio. At what points do you scale back just because your portfolio is getting hit 5%, 10% or more as the market is weakening?
Identify your core holdings and shorter-term plays. In a market pullback, cut your noncore positions first, assuming your core holdings are doing OK.
One argument for taking some profits when the market is extended, especially in noncore holdings, is because that eases tough decisions about selling in a pullback. It's hard to sell only to watch the market bounce right back. But if you don't do any selling by the time the Nasdaq is down, say, 5%, and the market keeps falling, the capital losses can mount.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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