The Dow Jones Industrial Average trimmed losses while other equities erased declines and headed mildly higher during early-afternoon trade in the stock market today. Yet at the session high of 24,470, the 30-stock Dow industrials are holding a 34% gain from its March 23 low.
While the Dow Jones shaved early mild losses to less than 0.4%, the Russell 2000 turned positive. The Nasdaq composite trimmed a 0.5% early loss to go up 0.2%. At 9305, the Nasdaq now holds a 3.7% gain since Jan. 1. The tech and market cap-weighted index rose 35.2% in 2019.
At around 1 p.m. ET, the S&P 500 edged less than 2 points lower. Innovator IBD 50 (FFTY) outperformed with a 0.5% lift and has now advanced 13% since April 1.
On April 2, a Day 8 follow-through by the S&P 500 scored the first blow against the coronavirus stock market crash, telling astute investors that a potential change in the stock market trend is arising.
Every major stock market bottom going back to 1903 has featured a follow-through day, the best time to begin actively searching for new leading growth stocks, including those in key IBD stock lists such as the IBD 50, Big Cap 20, Sector Leaders, IBD 50 Growth Stocks To Watch, and IBD Stock Of The Day.
Was This The Best Market-Timing Signal In 2020?
The April 2 Big Picture column highlighted the S&P’s follow-through. Just days later, the Nasdaq scored its own confirmation of a new uptrend on April 6, when it jammed 7.3% higher in expanding volume vs. the prior day on the 10th day of a new rally attempt.
Volume on Friday is running slightly higher vs. the same time Thursday on the Nasdaq, lower on the NYSE.
Keep in mind that trading tends to cool down ahead of a three-day holiday weekend.
Among the 197 industry groups tracked by IBD each day, automation machinery, airline, ship transport, oil drilling, hospital, steel, oil and gas field services, coal, and department stores fell the hardest. All of these groups slipped 2.7% or more on a price-weighted basis in the morning. But database software, shoe, enterprise software, gaming software, fiber optics, wholesale drug supply, security software and advertising groups rallied 1% or more.
See the full list of daily changes at IBD Data Tables.
The top growth stocks tend to hail from a group that already ranks in the top 40 of the 197-industry list.
Falling More Than Dow Jones, Much More
Meanwhile, U.S.-listed China growth stocks took it on the chin following news that the world’s No. 2 economy officially offered no growth forecast this year for the first time since it adopted a capitalist economic system more than 30 years ago. And the Hong Kong-based Hang Seng, a key benchmark for Chinese equities, got walloped. The index fell 5.5% overnight, crossed back below a declining 50-day moving average, and hit a seven-week low.
Alibaba (BABA) gapped lower despite posting a welcome surprise in Q1 results that included a 2% gain in earnings to $1.30 a share. In the year-ago quarter, profit boomed 41% higher. Wall Street had expected 85 cents. Revenue rose 16%.
Still, as the daily chart shows, Alibaba’s breakout attempt on May 19 past a 216.20 buy point in a cup with handle showed only a 15% pickup in volume vs. its 50-day moving average. Ideally, you want to see much heavier volume at the breakout, or soon afterward.
Another issue: The stock was moving past a buy point just days before key quarterly results.
At the session low, Alibaba fell 7.5% below the latest 216.20 buy point, triggering the golden rule of investing. The stock may also test institutional buying support at its key 50-day moving average.
Daily charts on both Investors.com and at MarketSmith draw the 50-day line in red. A 50-day moving average plots a stock’s average closing price over the past 50 trading sessions. The strongest stocks tend to lead their 50-day line highers as they break out of a solid base and rush to new 52-week or all-time highs.
On The Nasdaq, A New Leader
Meanwhile, Splunk (SPLK) added gains to its strong breakout as it gapped up in heavy turnover on interesting quarterly results. Shares broke out past a 161.90 entry in its three-month cup with handle. Trading as high as 184.39, shares are extended nearly 14% past that buy point.
However, given that the move came just days before earnings, one would be justified in using the cup’s left-side peak of 176.31 (plus a dime) as an alternate entry. The breakaway gap also produces a third logical buy point near 173, which was the high marked by the stock during the first 5 minutes of Friday’s trade.
As the database software has made its complete transition to a SaaS model (software as a service), the San Francisco-based firm reported a 2% jump in revenue to $434 million. That marked its smallest year-over-year increase in at least four years. Splunk also lost 56 cents a share vs. a 2-cent profit in Q1 of 2019.
And the Street sees a net loss of 23 cents a share in the July-ending fiscal second quarter.
Please see more details on Splunk’s quarterly results in this IBD technology team story.
However, Splunk benefits from being in a strong industry group and has the sponsorship of top-performing mutual funds, including Fidelity Contrafund (FCNTX), T. Rowe Price New Horizons (PRNHX) and BNY Mellon Mid Cap Multi-Strategy (MPMCX).
See the full list of top funds rated A or higher with a position in Splunk at MarketSmith.
Splunk Stock And The Stock Checkup Diagnosis
According to IBD Stock Checkup, Splunk receives a 98 Composite Rating on a scale of 1 (slime) to 99 (sublime).
This rating monitors fundamental factors — including earnings per share, revenue growth, profit margins, and return on equity — as well as how well a stock is performing vs. the S&P 500 and the rest of the stock market. The IBD Composite Rating also weighs the quality of fund ownership in the stock.
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