Dow Jones Off 500 Points; How To Spot An Apple Bottom

A big jump in crude oil prices gave a badly needed boost to energy shares. But the sell-off in stocks today swamped this sector move. At around 2:30 p.m. ET, the Nasdaq composite fell more than 2.5% in midafternoon trade. At 7005, the Nasdaq stands on course to fall more than 4.4% for the week after rebounding 5.6% the prior week.

The Nasdaq 100, tracking the 100 largest nonfinancial companies on that all-electronic exchange, also dropped more than 2.5%.

The S&P 500 and the Dow Jones industrial average both sank around 2.1%. Volume was running lower vs. the same time Thursday. The Russell 2000 slid 2% and the Dow Jones transports sank 3.5%. On Tuesday, IBD noted in The Big Picture column a change in the market outlook from “confirmed uptrend” to “uptrend under pressure.”

Wall Street weighed the possibility that China may take measures in retaliation to the arrest of Huawei Technologies’ CFO Meng Wanzhou in Canada.

Reuters reported that if Meng does not fight extradition to the U.S., she could be deported to Canada’s neighbor in weeks.

The U.S. government has conducted an investigation into whether the Chinese telecom gear giant has attempted to defy rules that bar companies from doing business with Iran.

Meanwhile, U.S. payrolls improved by a net 155,000 jobs in November, missing the Econoday forecast of 190,000 more jobs. The jobless rate held steady at 3.7%. Average hourly earnings rose 0.2%, missing the consensus view of up 0.3%. The Federal Reserve is still widely expected to raise short-term interest rates a fourth time this year during its final meeting in 2018 on Dec. 18-19.

The Worst Industry Groups On Wall Street Today

Among IBD’s 197 industry groups, specialty retail, airline, leisure services, leisure products, toy, apparel retail and shoe and apparel fell 3% or more. At least five oil and gas-related industry groups rose 1% or more. They include drilling, U.S. exploration and production, field services and integrated firms.

At one point, West Texas Intermediate oil futures jumped more than 5% to a session high of $54.22 a barrel before settling back some. OPEC nations and Russia reportedly made a new deal to cut production by a substantial amount to help stem the slide in prices.

Yet few if any of the stocks in these groups are positioned for an immediate breakout.

Chart Analysis Of Royal Dutch Shell

For instance, Royal Dutch Shell (RDSA) at one point rallied nearly 3% and hit a session high of 60.82 in heavy turnover, yet still stands 19% below a 52-week peak.

As this new “Inside The IBD 50” column explains, top stocks tend to trade around 5% to 15% below their 52-week or all-time highs before breaking out past a proper buy point and running to new highs, benefiting all the investors who are long in the stock.

Within the Dow Jones industrials, at least 11 of the 30 components fell 2% or more. Apple (AAPL), Goldman Sachs (GS), IBM (IBM) and Microsoft (MSFT) led the downside.

Goldman, trading near 179, has now fallen more than 34% below its 52-week peak. Its drop reflects fears over a severe flattening of the yield curve the past week.

Microsoft is outperforming in the sense that the cloud computing, business software and gaming hardware giant is trading only 8% off its 116.18 peak. The S&P 500 trades around 9% below its high of 2940. The S&P SmallCap 600, down 1.6% for a third decline in a row, languishes 17% below its all-time peak of 1100.

Analyzing Dow Jones Component Apple

Apple is trying to build a bottom after falling as much as 25% from an all-time high of 233.47.

While a 25% decline might seem like a great time to load up on shares, be mindful of the fact that big market winners, in constructing a new solid base pattern, can fall as much as 33% to 35% from their highs before finally bottoming out.

Three clues would help IBD readers identify that Apple has arrived at an equilibrium between buyers and sellers — and is raising its chance of forming a complete base.

One, look for big reversals off intraday or weekly lows. If, for instance, Apple falls more than 5% during the week but ends the week down fractionally or even up, it indicates fund managers backed up the truck to load up on “cheaper-priced” shares.

Two, monitor the volume on the down days. Thinning turnover on the declines, followed by advances in heavy or higher volume, would suggest that the sellers are exhausted.

Three, watch for an improvement in Apple’s Accumulation/Distribution Rating. This letter grade goes from A (heavy net buying by funds) to E (heavy net selling) and covers 13 weeks’ worth of price-and-volume activity.

According to IBD Stock Checkup, the iPhone, iMac, Apple Watch and digital services titan carries a worst possible E grade.

The Street sees Apple growing fourth-quarter profit by 21% to $4.71 a share. Over the prior four quarters, adjusted earnings grew 16%, 30%, 40% and 41% vs. year-ago levels.

Netflix Tries To Bottom Out Too

Netflix (NFLX), like Apple, is trying to carve out a bottom as well. In October, the online video streaming innovator took out its 200-day moving average. It also issued a defensive sell signal when shares failed to rebound back above the medium-term 50-day moving average.

In Other Financial Markets

The yield on the benchmark U.S. Treasury 10-year bond edged up 3 basis points to 2.9%. The yield is still off by more than 30 basis points from a year-to-date high of 3.24% set in early November.

Please follow Chung on Twitter at @IBD_DChung for more on chart analysis, growth stocks and financial markets.


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Originally posted 2019-09-19 23:27:31.


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