Dow Jones Futures signals that market sell-off will continue; JPMorgan and Wells Fargo top earnings

Dow Jones futures fell early Friday, along with S&P 500 and Nasdaq futures, even with earnings from JPMorgan, Wells Fargo and Citigroup leading the way. The stock market rally had a rough Thursday as popular growth stocks such as Tesla, Roblox and ServiceNow led the retreat.

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The Nasdaq fell to its worst close since October while the S&P 500 slipped below key support.

Taiwan semiconductor (TSM) broke out on strong earnings and guidance on Thursday. TSM stock rose 5.3% to 139.19, clearing an 11-month cup-and-handle base with a buy point of 135.60, according to MarketSmith analysis. But stocks closed at session lows. Chip equipment manufacturers Applied materials (AMAT), Research (LRCX) and ASML (ASML) rallied behind TSM’s strong capital spending plan, but either erased gains or reversed lower

Growth stocks have struggled overall, particularly highly rated unprofitable stocks or those with triple-digit price-to-earnings ratios, including You’re here (TSLA), Roblox (RBLX), ServiceNow (NOW) and data dog (DOG), as well as plenty of ARK-style action.

Tesla fell 6.75% on Thursday, falling back below its 50-day line. RBLX stock fell 10%, returning below its 200-day line. NOW stock plunged 9.1% to its lowest level since June. DDOG stock slipped 7.65% to its worst close since late August.

Boeing (BA), caterpillar (CAT) and Honeywell (SHE) tried to keep the Dow Jones positive. Shares of BA and Honeywell recovered their 200-day lines and broke trendlines during the day, briefly posting aggressive entries before pulling back. CAT stock jumped after pausing for a few days following a gap above the 200-day line.

Bank earnings

Dow Jones component JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (VS) reported better-than-expected fourth-quarter results on Friday, kicking off earnings for banks as financials held steady in the new year.

JPM stock fell nearly 4% ahead of the open. Stocks are below a traditional flat-based buy point. Wells Fargo, slightly stretched, is up 2%. Citigroup, which is still trying to recover, lost almost 4%.

Tesla and Nvidia shares are in progress IBD classification. AMAT stock is on SwingTrader. ASML stock and ServiceNow are on the long-term IBD leaders. Tesla and AMAT stocks are on the INN 50.

The video embedded in this article discusses Thursday’s market sell-off and analyzes TSM stock, Simon Real Estate Group (GPS) and JPMorgan.

Dow Jones Futures Today

Dow Jones futures slid 0.7% from fair value, with JPM stock acting as a drag. S&P 500 futures fell 0.7% and Nasdaq 100 futures fell 0.9%.

The 10-year Treasury yield rose 2 basis points to 1.73%. US crude oil prices rose slightly.

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 higher, turned mixed, then turned into a growth-oriented selloff to close near session lows.

The Dow Jones Industrial Average fell 0.5% in Thursday trading after rising for much of the session. The S&P 500 index fell 1.4%, with ServiceNow the worst performer. The Nasdaq composite slipped 2.5%. The small cap Russell 2000 lost 0.8%.

The 10-year Treasury yield fell slightly for a third straight day to 1.71% on Thursday. Fed Governor Lael Brainard, speaking at her confirmation hearing as Fed Vice Chair, said inflation was her top priority. This is the latest proof that even the dovish members of the Fed are now in favor of a tightening of monetary policy.

Crude oil futures fell 0.6% to $82.12 a barrel as natural gas prices fell after hitting a high in the previous session.

Key ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%, while the Innovator IBD Breakout Opportunities ETF (FIGHT) lost 0.7%. The iShares Expanded Tech-Software Sector ETF (VIG) fell 4.2%. Both NOW and Datadog shares are held by IGV. The VanEck Vectors Semiconductor ETF (SMH) fell 1.7%, with TSM, AMAT, LRCX and ASML stocks all notable components.

SPDR S&P Metals & Mining ETF (XME) fell 1.6% and the Global X US Infrastructure Development ETF (PAVE) fell slightly by 0.3%. US Global Jets ETF (JETS) rose 2.2%, with Delta Airlines (FROM) airline profits and tips. ETF SPDR S&P Home Builders (XHB) fell 0.4%. The SPDR Energy Select ETF (XLE) fell slightly by 0.5%. The SPDR Financial Select ETF (XLF) fell 0.3%, with JPM, Wells Fargo and Citigroup shares all notable holdings. SPDR Healthcare Sector Fund (XLV) lost 1.55%

Reflecting more speculative history stocks, ARK Innovation ETF (ARKK) fell 5.4% to a fresh 18-month low and ARK Genomics ETF (ARKG) fell 4.4% to a 19-month low. Tesla shares remain the main holding among ARK Invest’s ETFs. ARKK also owns RBLX shares.

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Market rally analysis

The stock market rally is facing its first test since rebounding from Monday’s lows, and it’s not doing too well so far. After hitting resistance at their 10-day lines on Wednesday, the major averages struggled on Thursday.

The Nasdaq composite led the selloff, dropping to a three-month closing low just above its 200-day moving average.

The S&P 500 slipped below its 21- and 50-day lines. The Dow Jones rose during the morning, but with the broad market selling off, the blue chip index also fell. Yet the S&P 500 and the Dow Jones are only days away from hitting record highs.

The Russell 2000 also lost ground, moving further away from its 50 and 200 day lines.

The losers edged out the winners on the NYSE but led decisively on the Nasdaq.

Software and highly rated growth stocks always look terrible. Tesla stock has fallen sharply, but at least it’s holding close to its 50-day line in a base. Software leaders such as DDOG and ServiceNow fell well below the moving averages.

Some chip stocks are holding up well, but are prone to intraday reversals just as they begin to gain momentum. Meanwhile, great leaders such as Nvidia (NVDA) are back near recent lows. Marvell Technology (LMRV), which was holding above its 50-day line, fell 7.4% to break above that key level.

Besides energy and financial stocks, manufacturing companies such as Boeing, Caterpillar and Honeywell are showing signs of life. Chemical manufacturers like Ashland (ASH) fall into place.

Ford engine (F) and other mainstream automakers such as Toyota (MT) and Stellantide (STLA) work well. The same goes for transportation companies, with the notable exception of most trucking companies.

Time the Market with IBD’s ETF Market Strategy

What to do now

A mixed and choppy stock market rally is treacherous. The sectors of the real economy held up relatively well. But a sell-off in growth stocks could send the whole market down. This is what happened on Thursday. Or, investors could return to growth and exit financials or energy.

As MarketSmith Commodity Coach Harold Morris said during Thursday’s IBD Live, position size is key in this volatile and uncertain market. The same goes for buying near the 50-day line in most cases. Don’t bet too big on specific stocks or broad sectors, and look for early entries.

There is also nothing wrong with reducing exposure or staying all or mostly in cash, pending real market strength. The Nasdaq is stuck below its 21 and 50 day lines, along with many stocks. This is not a hospital environment.

When bulls and bears are battling for market dominance, staying away makes a lot of sense.

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_ECarsonfor stock market updates and more.

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