The Dow Jones Industrial Average saw its 13-day winning streak come under threat in the stock market today. The 30-stock blue chip index fell nearly 0.5% with an hour left in the regular session. Microsoft (MSFT) slumped for the fifth time in seven sessions, falling 1.7%.
At the session low of 331.25, MSFT stock dipped lightly below its sharply rising 50-day moving average and 10-week moving average.
A strong bounce off the 50-day line or the 10-week line could furnish a new secondary buy point. The best time to add shares in a winning position is during a confirmed market uptrend.
The generative AI play and cloud computing giant has blazed a torrid run since its breakout past a pair of proper entry points. One, Microsoft coasted past a small flat base with a 276.76 entry back in March.
Two, Mr. Softy rolled over a 292.08 entry in a handle within its first-stage cup with handle.
Microsoft shares have gained as much as 32% and 25.5% from these entry points, respectively.
Inside Dow Jones
Within the Dow Jones Industrial Average, Honeywell (HON), Microsoft, American Express (AXP) and at least seven more components fell 1 point or more. At Thursday’s session high of 35,414, the Dow Jones has gained 7.5% year to date, lagging much more robust gains by the Nasdaq composite and the S&P 500.
Honeywell cleaved through its 50-day and 200-day moving averages, a bearish move that triggers a defensive sell signal. Shares at one point dropped more than 10 points, or 5% to below 198, before staging a brief rally. Volume rushed 121% higher than usual levels.
Notice on a daily chart how Honeywell’s relative strength line has been falling precipitously since early July. This means HON has grossly underperformed the S&P 500 in recent weeks.
On Thursday, the Nasdaq eased 0.4% after poking to a session high of 14,360, up 37% since Jan. 1. The S&P 500 edged nearly 0.5% lower, less than a 1.2% drop by the Russell 2000.
Meanwhile, West Texas Intermediate crude oil futures rallied more than 1.2% in the wake of a solid first reading on second-quarter U.S. GDP data. The economy rose 2.4% on an annualized basis, boosted in part by a 1.6% increase in personal consumption expenditures. Gasoline futures rose 1.4%, but natural gas fell 3%.
At around 3 p.m. ET, the yield on the key U.S. Treasury 10-year note jumped 16 basis points to 4.01%.
The 10-year note’s yield last closed above 4% on July 10.
Beyond Dow Jones: European Stocks Rally
Across the pond, European bourses rallied even after the ECB ratcheted the cost of short-term money by another quarter point. But European Central Bank President Christine Lagarde noted during a news conference that the bank is getting to the stage of weighing the possibility of pausing its monetary tightening campaign that’s aimed at quelling inflation.
Please read more details about the ECB decision in this WSJ.com story.
The Stoxx Europe 600 jumped nearly 1.4%. It’s gained in seven of the past eight trading days and notched a new 52-week high.
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Market Breadth Negative
According to Thinkorswim data, falling stocks far exceeded rising ones by a 5-2 margin on the Nasdaq and the NYSE.
Despite strength in crude oil, oil related firms cooled off.
VanEck Oil Services ETF (OIH) slumped 1.2% in light turnover.
The exchange traded fund is trying to clear a cup without handle that shows a 336.30 buy point.
Meanwhile, iShares Expanded Tech Software ETF (IGV) reversed from early gains to a mild 0.6% drop. The fund remains nicely above its rising 21-day exponential moving average.
IGV has rallied more than 23% since clearing a flat base with a 300.11 entry.
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Airlines Nose Lower
Elsewhere, Southwest Airlines (LUV) flashed a sell signal. The stock fell more than 9% in quadruple usual turnover and sliced through its rising 50-day moving average, a true sign of weakness.
Shares sold off hard on Q2 results (net loss of 27 cents per share despite a 22% rise in revenue to $5.71 billion). As seen on a weekly chart, LUV skidded back below a 40-week moving average, a no-no for growth stock pickers.
Prior to the drop, Southwest’s Relative Strength Rating of 57 had already pointed to the stock’s middling performance over the past 12 months.
In general, focus on companies that hold an RS Rating of 85 or higher.
Some new issues may not have 12 months’ worth of trading history, but as seen in the case of Cava Group (CAVA), they can still produce excellent relative strength.
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Beyond Dow Jones: Watch This New IPO
Cava made its NYSE debut at $22 a share. After its IPO, the Mediterranean cuisine-themed fast-casual eatery chain rocketed on its June 15 debut on the NYSE to as high as 47.89. The stock built a narrow IPO base and powered past the 47.89 entry less than four weeks later.
On Thursday, shares rallied more than 2% to a session high of 53.25 before pulling back. That translated into a solid 11% advance from the entry. It also means CAVA has gotten extended past the 5% buy zone (from 47.89 to 50.28) and thus should not be chased at current price levels.
At this point, watch for a potential new base to form.
Cava’s revenue climbed 28% to $203.1 million in the first quarter vs. a year earlier. That marked the strongest year-over-year top-line increase in at least five quarters. In the prior four quarters, Cava’s top line grew on average 12.8%.
First-quarter net loss of 2 cents was also the smallest net loss in five quarters.
Wall Street sees the company losing 8 cents a share for all of 2023 and losing another 6 cents in 2024.
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