The stock market woke up on the first trading day of 2024 Tuesday with a serious hangover after enjoying fizzy gains in 2023. Yet the Dow Jones Industrial Average bucked the decline with a tiny gain. Meanwhile, Microsoft (MSFT) fell 1.4% and led a brigade of top growth stocks that enjoyed solid advances last year but are now testing a key level of technical support.
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Crude oil reversed from an early gain. The U.S. dollar rebounded as the euro fell nearly 0.8% to $1.0946. Meanwhile, the U.S. dollar climbed 0.7% to 141.89 yen.
Microsoft, the juggernaut in enterprise software, cloud computing, gaming — and most recently software applications driven by artificial intelligence — slumped 1.8% and hit a session low of 366.77, below its rising 10-week moving average.
After a strong run-up, true stock market leaders eventually pull back to their 10-week lines. In a solid uptrend, institutions take the opportunity to add shares to their positions in the stock near or at the 10-week moving average.
On the other hand, when the stock market takes more than a short break and makes a significant correction, a big undercut of the 10-week line can unleash a key defensive sell rule.
Microsoft, which finished 2023 with a very impressive 57% gain, is now testing the top of a base that revealed elements of a double bottom and a 340.86 entry point.
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Among other stock market leaders, DoorDash (DASH), Latin American e-commerce heavyweight MercadoLibre (MELI), cruise ship operator Royal Caribbean (RCL) and logistics tech innovator Samsara (IOT) also need careful monitoring.
DASH and MELI both dropped 2% and are currently testing their 10-week lines, while Royal Caribbean and Samsara are getting close to a potential test. RCL slumped 7% and surrendered three weeks’ worth of gains.
Meanwhile, the sell-off in the stock market was fairly broad.
The Dow Jones Industrial Average gained 25.5 points, less than 0.1%, to finish Tuesday at 37,715. The Dow lagged other indexes last year, rising 13.7% after losing 8.9% in 2022.
Yet the Dow’s performance Tuesday proved far better than declines of 0.6% by the S&P 500 and 1.6% by the Nasdaq composite. Further, the Russell 2000 backtracked 0.7% after rising 15.1% last year.
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These Dow Jones Stocks Buck The Decline
In the price-weighted Dow, Amgen (AMGN) and Merck (MRK) led a posse of nine blue chips that actually rose 1 point or more. Last week, Amgen powered past a cup without handle and its 288.46 proper buy point. The stock, up 3% on Tuesday, remains within the 5% buy zone.
Johnson & Johnson (JNJ), another longtime laggard among blue chips, rose 2% and is battling upside resistance near its long-term 200-day moving average.
The Dow also reflected renewed buying demand in stock market laggards such as Procter & Gamble (PG) and Verizon Communications (VZ). Verizon has a much better Relative Strength Rating of 50 on a scale of 1 to 90. This means VZ has outperformed just half of IBD’s database in the past 12 months.
However, Verizon is also close to breakout out of a first-stage cup with handle that features a 38.88 buy point. The handle features tight weekly action, a positive. Still, earnings in the big dividend payer are seen dipping 9% to $4.71 a share in 2023 and falling 2% this year.
Magnificent Seven Loses Luster
All Magnificent Seven megacap tech leaders fell in the range of just under 0.1% to 3.6%.
Among those seven, Meta Platforms (META) lost 2%. But volume was running below average, just like Microsoft.
On a MarketSmith daily chart, Meta has faded to a test of buying support at the key 21-day exponential moving average.
Once a leading stock has broken out, it tends to stay above the 21-day line and even pull this moving average higher along the way.
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Stock Market Selling Intensifies
Volume ran higher on New York Stock Exchange and the Nasdaq vs. Friday’s ultraquiet session. Nonetheless, Monday’s sell-off is setting up as a distribution day, or bout of intense professional selling. Please see the latest The Big Picture column for the exact distribution-day count as one measure of the strength of the uptrend.
Elsewhere, the yield on the key U.S. Treasury 10-year bond jumped 8 basis points to 3.94%. At its 2023 peak back in October, the 10-year note yielded as high as 4.99%.
Watch for future reactions by bond traders with important news on U.S. inflation, manufacturing and the labor market later this week, including Friday’s nonfarm payrolls report
Crude oil rose on increased tensions caused by the appearance of an Iranian military ship entering the Red Sea. However, oil futures sank 1.6% to $70.51 a barrel on the Nymex.
Gold traded slightly lower at $2,067 an ounce. Silver dropped 0.8% to $23.89.
Bitcoin stood out on the upside. The ProShares Bitcoin Strategy ETF (BITO) gapped up and soared nearly 7% in heavy trading. BITO has hit the 20%-25% profit-taking zone after a breakout past 17.70 in an elongated double-bottom-style base.
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Please follow David Chung on Twitter: @saitochung and @IBD_DChung
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