May 28, 2024

Stock Market Cools Its Heels On First Trading Day Of 2024; These Top Stocks Test A Key Technical Level

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.


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.

Stock Market Today

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

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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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