Dow Jones Rises But Leaders Tumble, Tesla Stock Triggers Sell Rule; What To Do Now

Dow Jones futures, S&P 500 and Nasdaq were all lower after-hours. Stock market rallies struggled on Wednesday, as weak economic reports raised recession concerns for the second consecutive session.

The Dow Jones and Nasdaq are still doing well.

Once again, the declining stocks have beaten the winners. Again, many of these losers dropped hard. On Wednesday, many of these big losers, including On Holding, MarketAxess, and PagerDuty, were also leading stocks. C3.ai has been selling off for the second session. The AI stock is now staging an outside week that's massively to the downside.

After a relatively modest decline on Tuesday, many other names, including chip names, have declined more solidly and now show greater chart damage.

Tesla (TSLA), skidded for a 3rd straight day, triggering automatic sell rule.

Apple (AAPL), Microsoft, Alphabet parent Alphabet(GOOGL), Meta Platforms and Nvidia all dropped.

Bank stocks also came under increased pressure. Western Alliance Bancorp's (WAL), which led a retreat among regional banks in the morning, pared its losses. Charles Schwab (SCHW), which closed at a record low for the past two years, also hit a new closing low. Although bank deposits are relatively safe, the greater issue may now be long-term profitability of banks and lending curbs which rapidly slow down the economy.

The names of medical names and other defensive growths or defensive plays are also looking strong.

IBD Leaderboard includes Meta, Nvidia, PagerDuty, On Holding and Meta. Microsoft and Google are both on IBD's Long-Term Leaders List. IBD 50 includes ONON.

The weakness of growth stocks and other top-performing stocks is alarming, despite the relatively benign performance in the major indices. Investors need to look for ways to cut their losses and protect their profits.

Dow Jones Futures Today

S&P 500 and Nasdaq futures both declined by 0.1%.

Keep in mind the overnight Dow Futures session.

Stock Market Rally

Despite the mixed performance of the major indexes, the stock market rallied had a negative session.

ADP's Employment Report revealed that private payrolls increased much less than anticipated in March. This comes a day following a significant drop in job openings in February. The ISM services index for March fell more than anticipated, signaling a rapidly slowing of growth.

In Wednesday's stock exchange trading, the Dow Jones Industrial Average increased by 0.2%. S&P 500 index fell 0.25%. The Nasdaq composite fell 1.1%. Russell 2000 small-caps fell 1%.

The price of U.S. crude dropped by 0.1%, to $80.61 per barrel.

The yield on the 10-year Treasury fell 5 basis points, to 3.285%. This is the lowest level in almost seven months. The yield on the 2-year Treasury fell 7 basis points, to 3.76%. This is a 34 basis point drop in four sessions.

ETFs

Innovator IBD50 ETF (FFTY), a growth ETF, lost 1.9% while Innovator IBD's Breakout Opportunities ETF(BOUT) fell 0.65%. The iShares Expanded Tech Software Sector ETF (IGV), a growth ETF, fell 1.3%. IGV is dominated by Microsoft and other heavyweights, while speculative names such as PagerDuty have suffered greater losses. VanEck Vectors Semiconductor ETF SMH lost 1.75% with NVDA as a major holding.

ARK Innovation ETF ARKK (ARKK) fell 3.6%, while ARK Genomics ETF ARKG (ARKG), shed 1.8%. Ark Invest ETFs are dominated by TSLA. Some Ark funds own PD stocks.

Global Jets (JETS) ETF and SPDR S&P homebuilders ETF both fell 1.5%. Energy Select SPDR Fund ETF (XLE), a 1.5% gainer, and Health Care Select Sector SPDR Fund XLV (XLV), a 1.7% riser, reached their highest level since February 14.

Bank Stocks

Financial Select SPDR ETF XLF (XLF), which includes SCHW, fell 0.1%. The SPDR S&P Regional Banking ETF KRE, which includes WAL stocks, fell 1%. However it finished at lows.

Western Alliance's stock dropped as much as 19% after the company released some financial metrics, but did not disclose deposits. The California-based bank revealed that deposits had fallen 11% between March 31 and the end of 2020, which was not as bad at all as many feared. WAL closed at a 12.4% loss.

Investors in bank shares may not do well, despite the fact that financial regulators have made it clear that they will protect all deposits in any bank which buckles. Banks will likely be less profitable in the future, since they'll have to pay higher deposits. In general, lending will be restricted, particularly from regional banks. This suggests that the economy will slow down much faster than expected.

Leading Stocks Drop

Here are a few of the top stocks that fell on Wednesday.

ONON's stock fell 9.7%, to 29.35, after a Baird Analyst downgraded the stock to neutral. The upscale athletic shoes maker broke a rare short stroke pattern on Tuesday. This comes after a few weeks of blasting off a base due to strong Q4 results.

PD stock fell 6.1% to 31.78 on Wednesday, after only losing a fraction of a percent Tuesday, right at the buy-point.

MKTX's stock plunged 13.9%, to 337.74. It fell below the 389.67 purchase point and 50-day line. MarketAxess dropped after it released March trading metrics. Tradeweb Markets, which released data for March as well, also fell 7.6% and undercut an important buy point.

AI shares fell 15.5%, to 21.09. C3.ai fell 26% on Tuesday. AI stocks have already staged a downside week after soaring 33% last week.

Megacap Techs

Apple's stock dropped by 1.1%, and Microsoft's fell by 1%. This did not lessen the pain of Wednesday for big-cap indexes. Both are still in the buy zone. META stock fell 1.5% but is still slightly extended. Nvidia shares fell 2.1% but are still very highly extended. Google's stock closed down only 0.2%, reversing from a point of near-buy.

Tesla stock fell 3.7%, to 185.52, falling below its 50-day average. This brings its weekly loss up to 10.6%. This follows the Q1 delivery numbers released on Sunday. The shares fell by more than 7-8% below 200.76, the cup-with handle buy point. This triggered the automatic sell rule. TSLA could form a new handle within a few weeks with a 207.89 purchase point. The 200-day average, which is currently around 215, could be a major resistance.

Market Rally Analysis

Investors can track the health of an upswing in the stock market by looking at the leading indexes. The major indexes were mixed on Wednesday but this masked the weakness of leaders.

The Nasdaq composite has fallen for the third day in a row, and is now back below 12,000, but it still appears to be a healthy break. S&P 500 is similar.

Dow Jones shares rose slightly due to medical stocks and consumer staples like Walmart (WMT).

Russell 2000 is the most vulnerable, trading well below its moving averages. Banks are a major negative.

On the Nasdaq, losers outnumbered winners 2-to-1 and on the NYSE 3-to-2.

These stocks continued to fall Wednesday, but the biggest losers were growth plays and other leaders.

PagerDuty and other software names that held Tuesday or even rallied, skidded on Wednesday.

The chips, which had lost some ground on Tuesday, but looked generally healthy, were roughed-up Wednesday.

MarketAxess, ONON and other leaders fell.

In recent weeks, mortgage rates have dropped significantly, which is good news for homebuilders. Skyline Champion, a manufactured homebuilder, fell 2.3% for the week, a 9% drop.

Health insurers, as well as large-cap biotechs, pharmaceutical companies, and medical products are all stepping up. Medicals are defensive growth investments, with steady or even strong growth. They're relatively immune to the economy because government and private insurance cover most costs.

Hershey (HSY), is doing well. Utilities, REITs and REITs also are moving up.

What to Do Now

Currently, the stock market is in a slump. While the major indexes are fine, leading stocks are increasingly not. The sell-offs are often fierce. Leaders showed on Wednesday that some stocks can do well in a bad day but then crash later.

Even if it's not their stated goal, investors should reduce exposure. You can reduce your overall exposure by cutting losers and taking partial profits on winners.

Some stocks have been severely damaged. Some stocks need a few good days for them to be able to get back up and running. Others, like medicals, have already begun to move toward actionability. It's crucial to remain flexible and engaged. Prepare your exit strategy and watchlists.

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