The S&P 500, which dropped 6.2% (excluding dividends) in 2018, sank more than 2.4%. Intense buying in defensive areas of the market — think dairy and meat, property REITs, gold mining and telecom services — provided little solace for most investors. The Dow Jones utility average rose nearly 0.1% after falling almost 1.7% on Wednesday.
Dow Jones industrial component Verizon Communications (VZ), formerly on IBD Leaderboard, edged up 0.3%. The stock is trying to reclaim its rising 50-day moving average. Watch for a potential new base to form.
Curiously, small caps performed relatively better but still caved in price. The Russell 2000 fell 1.3%. The S&P SmallCap 600 fell 1.8%, snapping a five-day winning streak.
Volume ran higher vs. the same time Wednesday on both main exchanges, according to early data, signifying heavy institutional profit-taking.
Perhaps institutions are selling shares of multinational corporations much harder, given the clear evidence mounting in China of a growth slowdown. U.S. and China have called a 90-day truce on the trade war and have until March 1 to find a way to end the festering battle on import tariffs.
Apple Leads Dow Jones Lower
Apple gapped down at the open and remained near session lows, falling as much as 10%. The iPhone, iPad, Macbook and digital services giant cut its revenue guidance for the just-ended fiscal first quarter to $84 billion, down from $91 billion. This means Apple’s top line is likely to fall nearly 5% on a year-over-year basis.
Such a drop in the top line would be the first since a 9% decline in the fiscal fourth quarter that ended in September 2016.
The Street, before the bombshell news from CEO Tim Cook shared late Wednesday, had been expecting fiscal Q1 profit to rise 20% to $4.65 a share. That comes after adjusted EPS gains of 18%, 24%, 16%, 30%, 40% and 41% in the prior six quarters. The consensus revenue growth forecast for the December-ended holiday quarter prior to the revised forecast came in at $91.49 billion, up 4%.
As the Stock Market Today column had noted frequently in the past, Apple began its impressive run after staging a clean breakout from a first-stage (or early stage) cup with handle on Jan. 6, 2017. The buy point at the time: 118.12. Since that breakout, the megacap tech rallied as much as 97% to its peak of 233.47 on Oct. 3 last year. Along the way, Apple built a series of additional bases, such as the flat base, and gentle pullbacks to the 10-week moving average. These actions presented new buy points along Apple’s 21-month price run.
This breakout coincided with a turnaround in Apple’s fundamentals. Exactly two years ago, Apple had reported its first quarter of year-over-year gains in both profits (up 2%) and sales (up 3%) in four quarters.
The complexion of Apple’s chart action completely changed during the week ended Nov. 2. The stock cleaved through its 10-week moving average near 220.57, falling more than 4% for the week in volume that shot up 51% above its 10-week average. Apple hardly tried to rally back above this key support-and-resistance level; thus, a key IBD sell signal was born.
Apple Stock Strategy Now: Avoid A Full Round Trip Of Profits
Given the strong advance since that breakout, Apple shareholders who bought at the proper breakout point must draw a line in the sand. A solid gain should never be allowed to turn into a loss.
At the day’s low of 142.08, Apple has now fallen 39% from a 233.47 peak.
Typical base patterns such as the cup with handle and double bottom generally show a decline of no more than 30% to 33%. But this often is the case in a bull market. With the bears in control, one can expect some corrections in top growth stocks to exceed that range. Breakouts from deep bases do work, but the probabilities are lower.
This Nasdaq Giant Bucks The Drop
Elsewhere, Netflix (NFLX) bucked the decline with a sixth straight gain. The online video streaming innovator is still in the early stages of forming a new base.
Brazilian banks continued to rally nicely. Banco Santander (BSBR) cleared a 12.35 buy point in a new flat base as shares jumped more than 2.5% following a 9% rip higher the prior session. Itau Unibanco(ITUB) and Banco Bradesco (BBD) are also rising firmly.
This New Food Stock Is Beating The S&P 500 And Dow Jones
Going back to the food sector, Simply Good Foods (SMPL) roared more than 5% higher in heavy volume, and at one point shares rose to as high as 20.59. The stock is quickly recouping recent losses. Simply Good also has sculpted a beautiful, yet sometimes rocky, uptrend since breaking out past a 15.08 proper entry point in a saucer-like base in early to mid-July last year.
The stock showed up in today’s IBD Stocks On The Move. This proprietary stock list shows high-quality stocks that are rising or falling in unusually high turnover.
The Denver-based maker of new snack foods posted a fifth quarter in a row of solid results. Adjusted earnings jumped 29% to 18 cents a share, according to calculations by William O’Neil + Co. Revenue rose 13% to $120.9 million, a quarterly best.
The top-line growth is also showing acceleration. In the prior four quarters, revenue increased 7%, 7%, 11% and 11% vs. year-ago levels.
Simply Good is a small cap, trading on average 597,000 shares a day. It holds a $1.6 billion market value and has 81 million shares outstanding. The float, according to charts on MarketSmith, is 63 million shares.
In Other Financial Markets
Institutions continued to seek safe havens. Both short- and long-duration U.S. Treasuries rose in price, sending yields in the benchmark 3-month T-bill down 1 basis point to 2.41% and the 10-year government bond down a staggering 10 basis points to 2.56%.
That marked the lowest yield for 10-year Treasury notes since Jan. 16, 2018. Meanwhile, the annualized dividend yield for the S&P 500 has risen to nearly 2.1%.
Crude oil futures rose moderately for a fifth session in a row, following its collapse of as much as 44% during the fourth quarter of last year. West Texas Intermediate near-term future prices gained 0.7% to $46.85 a barrel. The U.S. dollar fell against both the euro and the yen. The dollar now trades for 107.68 yen, down sharply from as high as 113.63 on Dec. 13.
