Stock futures angled into an early slide Monday — tracking overseas action — as coronavirus concerns, China trade news and an OPEC oil production decision hammered global markets. AutoNation, Atkore and Five9 were among the premarket’s few advancers. And the Dow Jones today dropped more than 500 points early, as nearly 25% of the index fell more than 2%.
Dow Jones futures tumbled 1.5%, suggesting the benchmark would open back below its 21-day and 50-day moving averages. S&P 500 futures backed off 1.3%. Nasdaq 100 futures were off 1%. Early declines suggested both the Nasdaq and S&P 500 would hold well above their 50-day support.
Small caps were under particular pressure, with Russell 2000 futures down 2.3% and steering toward a fifth-straight decline.
Stocks dived in Hong Kong as U.S. Treasury Secretary Janet Yellen criticized the effectiveness of Trump administration tariffs against China. Tech stock investors worried over rising regulation in Hong Kong, as well as oversight limiting registration of Chinese stocks on U.S. markets. The Hong Kong Hang Seng Index shed 1.8%. In Japan, Tokyo’s Nikkei 225 closed 1.25% lower.
Stocks in Europe saw an even sharper drop, responding to the spread of the Covid-19 Delta variant, as well as impact from a historical spell of flooding in Germany. In afternoon trade, Frankfurt’s DAX, the CAC-40 in Paris and London’s FTSE 100 were all down more than 2%.
Dow Jones Today: Chevron Leads Slide
Apple (AAPL) dropped 1.5%, leaning toward a third-straight decline. Apple stock is sitting on a seven-week advance, and is extended above a 137.17 buy point. IBM (IBM) reports its second-quarter results after the market close.
S&P 500, Nasdaq: Qualcomm, Zoom Video, Tesla
On the S&P 500, oil stocks posted five of the 10 deepest early losses. Marathon Oil (MRO) fell hardest, down 5.8%. Airlines and cruise line operators were also hard hit, with Norwegian Cruise Line Holdings (NCLH) down 5.8%, and American Airlines Group (AAL) showing a 4.9% loss.
Qualcomm (QCOM) showed some resilience, a holdout among S&P 500 and Nasdaq 100 stocks. It shed early gains and dipped 0.2% after Goldman Sachs upgraded the chipmaker to neutral, from sell. It also raised Qualcomm’s price target to 148, from 136.
Zoom Video shares slumped 1.8% after the company agreed to pay $14.7 billion for customer contact software maker Five9 (FIVN). Five9 shares rallied 7.8%.
ASML dropped 2.3%, hurt by a Wall Street Journal report that the Biden administration has pressured the Dutch government to prevent sales of top-end chip equipment to China.
Tesla (TSLA) dropped 2.2%, as it leaned toward a fifth-straight day of declines.
Auto retailer AutoNation (AN) gained 0.5%. The Ft. Lauderdale, Fla.-based outfit reported huge second-quarter revenue and earnings beats.
Vital Signs: Oil Prices, Bond Yields
Oil prices retreated after the Organization of Petroleum Exporting Countries and partners led by Russia, typically called OPEC , agreed Sunday to a planned increase in production.
West Texas Intermediate swooned 3.7% to just above $69 a barrel. Oil prices now have dipped for two weeks, on the heels of a six-week rally. Prices on July 6 reached $76.98, their highest level since October 2014. They are now positioned for a test of support at their 50-day moving average.
Bonds climbed, sending yields sharply lower early Monday. The 10-year yield backed off to 1.22%, down from a settle at 1.30% and a high of 1.42% on Tuesday. Yields have declined in eight of the past nine weeks, and are poised for a test of support at their 200-day moving average. The last time the 10-year yield broke below the 200-day support line was in December 2018. That began a nine-month slide that ended just ahead of the Covid-19 pandemic.
Dow Jones Today: Blue Chip Bases, Earnings
The Dow Jones today sets up for a week in which nine of its components, or 30% of the index, report earnings. Four of those are in bases or near buy points.
Coca-Cola is the only one of those with technical and fundamental indicators qualifying for CAN SLIM investors. Its Composite Rating of 80 from IBD ranks it No. 1 among makers of non-alcoholic beverages.
Coca-Cola shares ended Friday just a fraction below a 56.58 buy point in a flat base. Coke’s relative strength rating is lagging. But its relative strength line is within striking distance of the six-month high chalked up in March.
Market Conditions: Protecting Capital
Deteriorating market action, including the Nasdaq slip on Friday below its 21-day exponential moving average, cautions investors to be on the defensive. Protecting capital — locking in even small gains and limiting exposure — is for now the name of the game. In general, it is a time for building watchlists rather than making buys.
For more detailed analysis of the current stock market and its status, study the Big Picture.
With earnings season gathering steam, investors may be tempted to grab leading stocks poised to pass buy points on earnings news. Those who do should study up on their earnings season options strategy, in order to limit risk.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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