Dow Jones Hit Hard; Watch 4 Growth Stocks

The Dow Jones industrial average suffered its biggest point decline since Jan. 3, losing nearly 400 points amid growing concerns of a slowing global economy. The Nasdaq composite got hit harder with a more than 1.9% drop, losing much of last week’s 2.7% advance.




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Volume is running lower vs. the same time Friday, which got a huge boost from the expiration of stock and index monthly options.

Meanwhile, not all market leaders declined.

Recent spinoff Tencent Music (TME) rallied as much as 7% and cleared a pair of key buy points, including a standard entry of 14.85 in a narrow IPO base. Read more about Tencent Music and see its annotated charts on IBD Leaderboard.

Restaurant stocks also fared relatively well, including names such as Dow Jones industrial component McDonald’s (MCD) and small cap Wingstop (WING). The latter has formed a handle after a recent breakout stumbled. Five Below (FIVE), noted in the latest IBD Investing Action Plan, continues to form a base. The innovative variety retailer showed relative strength with a loss of less than 1%.

This Retail Sector Leader Shows Market Leadership

Notice how the relative strength line, drawn in blue in all IBD charts, has risen nicely in recent sessions. Often, top performing growth stocks show an RS line bolting into new high ground just as a stock stages a sound breakout from a well-formed base.

The S&P 500 slid more than 1.6%. Small caps fell almost just as hard. The Russell 2000 backtracked nearly 1.5% after rising 3.5%, 3.2%, 4.8% and 2.4% in the prior four weeks.

On Jan. 3, the Dow Jones industrials got slammed 660 points lower, down 2%. But the very next day, the market registered a key follow-through. A follow-through offers the most timely signal that stocks may have bottomed out and a tradeable rally is emerging.

However, keep in mind that not every follow-through works out. Some follow-throughs do produce headfakes. Read more on this concept in this recent Investor’s Corner column.

That said, the key equity averages, for now, are trying to keep a firm grip near the 50-day moving average, an important technical level of support and resistance.

FANG Stocks Fall More Than The Dow Jones

FANG stocks are definitely cooling off after staging a big bounce in January. Google owner Alphabet (GOOGL) dropped 2.4% in slow volume. The stock is set to snap a four-day winning streak.

Watch to see if the global web search giant can hold above its flattening 50-day moving average.

Apple (AAPL) dropped more than 1.5% to 154.39. Volume is very dull. Yet the stock has a long way to complete a new base. The iPhone giant, facing weaker than expected sales in key markets such as China and India, is trailing most big cap techs by trading 33% below a 233.47 peak.

In contrast, Alphabet is 16% below its 52-week high. This means the Nasdaq-based megacap tech has less work to do in getting back close to its peak and possibly break out again.

The Worst Industry Groups

Hand tool stocks fared the worst among the 197 industry groups tracked by IBD on a daily basis. Stanley Black & Decker (SWK) dropped more than 10% on Q4 results that showed slim sales growth of 5% to $3.63 billion. Earnings fell 3% to an adjusted $2.11 a share, according to William O’Neil + Co. data, nudging past the Wall Street consensus view of $2.10.

Some defensive industry groups bucked the decline. Gold mining stocks advanced 0.4% as a group. See the entire daily performance of the 197 IBD industry groups by going to Data Tables within the “Stock Lists” section of Investors.com.

Kirkland Lake Gold (KL), featured in IBD Stock Spotlight and in the Inside The IBD 50 column in December, continues to act as a market champion.

The Toronto-based miner rallied nearly 4% in light volume to 27.34. That gain extends its advance from a Dec. 10 breakout from a cup without handle and a 23.96 proper buy point to 14%.

In Other Financial Markets

Oil-related shares and semiconductor firms also led the downside. WTI oil prices fell 3%. But at $52.18 a barrel, crude remains sharply above a Christmas Eve low of $42.53.

The IMF shaved its global GDP forecast for 2019 to 3.5% from 3.7% following news that the Chinese economy grew at the slowest rate since 2009. Q4 GDP in the Middle Kingdom likely rose 6.4%.

U.S. Treasuries, which sold off hard on Friday, saw a return from some institutions.

The yield on the benchmark 10-year U.S. Treasury note sank 6 points to 2.73%. At the start of the year, the yield was 2.66%.

Please follow Chung on Twitter at @IBD_DChung for more on financial markets, charts, stocks forming bases and breakouts.

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