The Dow lead an early tumble Monday, as concerns over a new round of tension between the White House and Beijing sent global markets sharply lower. News from Warren Buffett’s Berkshire Hathaway sank airline stocks and sent Boeing to the bottom of the Dow Jones today. Earnings news and coronavirus developments sent a handful of stocks to modest early gains.
The Dow stumbled to a 1.1% loss, the S&P 500 dropped 1% and the Nasdaq shed 0.6% as the market feels for its next move in its rebound from the coronavirus stock market crash.
Oil stocks crowded the top of the S&P 500, despite early declines in oil price futures. Vertex PharmaceuticalsVRTX was also high in the mix, up 2.7% in opening trade. Vertex is near the top of a buy range above a 249.95 buy point.
At the bottom of both the Nasdaq 100 and the S&P 500, airlines were taking an early pounding. Quarterly filings showed Warren Buffett’s Berkshire Hathaway (BRKB) had dumped its entire stake in four top airline stocks. Delta Air Lines (DAL), United Airlines (UAL) and American Airlines (AAL) were all down around 10%.
On the IBD 50 list, Franco Nevada (FNV) rallied 3.6% to lead the list. Barrick Gold (GOLD) added 2%, ahead of its earnings report scheduled for early Wednesday. Gold futures were off early highs, up 0.7% early Monday, hanging below the 7-1/2 year high notched on April 14. The VanEck Vectors Gold Miners ETF (GDX), currently on the IBD Swingtrader list, gained 2.3%,
Marijuana stock Canopy Growth (CGC) received a 2% boost by news late Friday that Constellation Brands (STZ) had exercised $174 million in warrants, increasing its stake in the pot grower to 38.6%. Constellation produces Corona beer, as well as wines and liquors. Its shares dipped 1.1% in early trade.
Pompeo’s Impact On Global Markets
Global markets swerved lower Monday, as top U.S. officials ramped up attacks on China over the weekend, saying the country was responsible for and had lied about the coronavirus pandemic.
“I can tell you that there is a significant amount of evidence that this came from that laboratory in Wuhan,” Secretary of State Mike Pompeo said Sunday on ABC’s “This Week” program.
Hong Kong’s Hang Seng Index led the downslide, closing down 4.2% on Monday after reopening from a three-day weekend. China’s Shanghai Composite remains closed through Tuesday. In Japan, the Tokyo Stock Exchange is dark through Wednesday, and is set to restart trading on Thursday.
In Europe, Benchmarks in Europe and Frankfurt traded more than 3% lower in afternoon action. London’s FTSE 100 recovered its early losses, holding flat in early afternoon trade.
Earnings News: The Stallion And The Hen
Monday’s early earnings news didn’t send up any fireworks, although exotic-car builder Ferrari (RACE) rolled up 1.8% as investors dug into its first-quarter report. Earnings narrowly topped analyst views, while management guided second-quarter earnings to below expectations. The stock ended Friday 10% below a cup-with-handle buy point.
Arkansas-based Tyson Foods (TSN) dropped more than 7% after reporting its second-quarter results. Tyson shares have traded largely sideways since late March, as the coronavirus pandemic came down hard on the meat processing facilities.
Performance Foods (PFGC) rallied 2.2%. The Richmond, Va.-based food distributor delivered mixed first-quarter results, but earnings topped by a wide margin. There’s no valid buy point in sight, but the stock is bucking to retake support at its 10-week moving average.
Dow Jones Today: Buffett Rattles Boeing, Disney On Deck
Boeing was the big drag on the Dow Jones today, slumping 5.6% in premarket action
“We shut off air travel in this country. And what that does to people’s habits, how they behave in the future, it’s just hard to evaluate. I don’t know the answer,” Dow Jones reported Buffett saying at Berkshire’s annual meeting on Saturday.
Buffett also said future demand for commercial jets had become difficult to forecast, and that the circumstances of Boeing’s success were “certainly out of our control.”
Elsewhere on the Dow, Walt Disney (DIS) dropped 2.4% ahead of its fiscal second-quarter report, due out after Tuesday’s close. Disney stock outpaced the Dow’s powerful rebound from a March low, rising 32.9% vs. the Dow’s 30.3% gain.
But Disney stock has not yet formed any sort of buyable chart pattern. Shares did retake their 10-week moving average in weak trade last week. Holding that line of support will be Disney’s big test following its report.
Coronavirus News: Numbers Update
Monday’s early data showed almost 75,000 new cases of coronavirus worldwide over the prior 24 hours, a 2.1% increase that lifted the cumulative total of infections above 3.58 million. The number within that total who have recovered rose to more than 32%. The number who have died fell just below 7%.
The European Economic Area’s share of total infections continued to decrease, slipping below 33% on Sunday, down from more than 44% at the start of April. The U.S. portion of the global cumulative total was steady at 33%. The U.K., Iran and Brazil saw large increases in new infections. Russia continued its massive upsweep in new cases, adding almost 11,000.
The U.S. reported 22,490 new patients to its list, a 1.9% rise to nearly 1.19 million — although many states had not yet updated their reports from Sunday. Another 1,007 persons died, lifting the total lost 1.5% to 68,603.
Coronavirus News: State Restarts
Several movie theaters re-opened in the San Antonio area on Saturday, the first in the country since the lockdown orders went into place. Some 17 states have lifted stay-at-home rules and are phasing into early re-opening schemes. Florida, Indiana, Kansas and Missouri are among the half-dozen states set to lift their lockdown rules this week.
A number of other states are extending stay-at-home and business shutdown orders. Oregon on Friday extended its stay-in-place lockdown until June 6. Michigan extended its lockdown to May 15, but is allowing a longer list of businesses to open.
Dow Jones Today: A Ceiling Or A Floor?
After a busy couple weeks of earnings reports, the Dow Jones heads into the first full trading week of May, having pulled back in a test of its 50-day line. It has managed, despite two weeks of losses, to hold above that line, which it retook a week ago for the first time since late February. In fact, the entire market is braced in a “wait-and-see” posture as states tip-toe into their restart regimens, and as U.S./China trade appears set for another round of turbulence.
The Dow has bounced 30.3% from a March 23 low through Friday’s session. The Nasdaq rebounded 29.8% and the S&P 500 chalked up a 29.2% gain. While the Dow tests support, the Nasdaq — which has acted as the pace car for the stock market uptrend — has posted tight closes over the past three weeks. In a stock, this pattern suggests institutional buying and sets up a follow on buy point.
The pattern in an index can also preface a possible move higher. But there’s no guarantee. The wrong headline could send the Dow below support and the Nasdaq lower out of its pattern. As noted in Saturday’s weekly Stock Market Update: “After 12 weeks of battle since the February peak, this is where we stand. It will either be a very strong ceiling or a very strong floor.”
Stock Market Uptrend: The 10-Day vs. The 21-Day Line
Two technical indicators, the 10-day moving average and the 21-day moving average, come into focus this week.
Both the Nasdaq and the S&P 500 dropped below their short-term, 10-day lines on Friday. That is often a precursor to the market shifting out of an uptrend. Losing ground below this indicator could be a sign of more declines ahead.
On the more positive side, the Nasdaq’s 21-day line crossed above its 50-day early last week, a background indicator of rising strength. The Dow’s 21-day line climbed to end Friday laid just on top of its 50-day average, like swords crossed before a duel. The Nasdaq’s 21-day line had similarly crossed swords with the 200-day average.
If the short-term average prevails and pulls above the longer-term averages this week, it would be another positive for the market’s month-long uptrend. Investors should be braced in case the short-term line gets tangled up and stalls, which could signal a period of volatile deterioration.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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