The Dow Jones Industrial Average saw its 13-day winning streak snap in the stock market today, losing 237 points, or almost 0.7%. The 30-stock blue chip index also finished near session lows. Microsoft slumped for the fifth time in seven sessions, falling nearly 2.1%.
At the session low near 329, MSFT stock dipped notably 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. Please keep in mind that in terms of buying strategy, 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 narrow 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, Microsoft, American Express and at least four additional components fell 2 points or more. At Thursday's session high of 35,645, the Dow Jones had gained 7.5% year to date, lagging much more robust gains by the Nasdaq composite and the S&P 500.
AmEx And Honeywell Produce Sell Signals
AXP undercut its 50-day line in disappointing fashion. The stock is triggering the golden rule of investing, falling more than 7% below a 177.04 handle buy point following a low-volume breakout earlier in the month.
Meanwhile, Honeywell cleaved its 50-day and 200-day moving averages, a bearish move that triggers a defensive sell signal.
Shares finished near their low for the day, down nearly 12 points, or almost 6%. Volume rushed 121% higher than usual levels. The expert in automotive and aerospace systems products posted a 13% rise in second-quarter earnings to $2.38 a share. Revenue inched up 2% to $9.15 billion; growth in the top line decelerated from year-over-year gains of 6% in the prior three quarters.
Notice on a daily chart how Honeywell's relative strength line has been falling precipitously since early July. This means HON stock has grossly underperformed the S&P 500 in recent weeks.
On Thursday, the Nasdaq eased almost 0.6% after poking to a session high 14,360, up 37% since Jan. 1. The S&P 500 backtracked a little more than 0.6% lower, less than a 1.3% drop by the Russell 2000.
Meanwhile, West Texas Intermediate crude oil futures rallied more than 1.2% to close at $79.77 a barrel in the wake of a solid first reading on second-quarter U.S. GDP data. At one point, Nymex crude touched $80.60, the highest point since April 19.
The U.S. 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%.
Investors sold more government securities. 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 fresh 52-week high.
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Market Breadth Negative
According to Thinkorswim data, falling stocks far exceeded rising ones by a nearly 3-1 margin on both the Nasdaq and the NYSE.
Despite strength in the price of crude oil, oil-related firms cooled off.
VanEck Oil Services ETF slumped 1.5% to 332.62 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 reversed from early gains to a relatively milder 0.8% drop. Volume dropped 37% below its 50-day average. 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.
Airlines Nose Lower
Elsewhere, Southwest Airlines flashed a key sell signal. The stock fell 9% in more than 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, they can still produce excellent relative strength.
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Beyond Dow Jones: Watch This New IPO
Cava, down 3.4% to 49.88 in accelerating turnover on Thursday, priced its initial equity offering 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.
According to MarketSmith, Cava stock hosts a solid 96 3-month Relative Strength Rating.
On Thursday, shares rallied more than 2% to a session high 53.25 before pulling back below 50 by day's end. 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.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
