The Dow Jones Industrial Average has surrendered as much as 5% amid a three-day decline in the coronavirus stock market rebound. Please observe how on a daily chart the Dow Jones and its tracking ETF, SPDR Dow Jones (DIA), are now close to testing institutional buying support at the 50-day moving average.
XIBD and MarketSmith draw the 50-day moving average in red on all daily charts.
A stark warning by Federal Reserve Chair Jerome Powell on the potential pace of economic recovery spurred intense profit-taking. Powell told the crowd at a speech in New York that he believes unemployment, caused by Covid-19-fighting measures to slow down the spread of the deadly disease, may peak next month.
Yet all the indexes remain sharply above their March 23 lows.
An April 2 follow-through day by the S&P 500, on Day 8 of its new rally attempt that began on March 24, has stayed intact. Read more details about the overall state of institutional selling in Tuesday's The Big Picture column. This column noted that the distribution day count remains light.
At least 10 of the Dow Jones industrials' 30 components at one point fell 3 points or more, sending the blue-chip index down more than 2.3% in late-afternoon trade. They include managed care titan UnitedHealth (UNH), Goldman Sachs (GS) (IBD), Boeing (BA) and American Express (AXP).
But some bargain hunting returned in the final minutes of the regular session.
At around 3:45 p.m. ET, the Nasdaq and the S&P 500 cut their losses to 1.5%-1.7%. Volume is now tracking only fractionally higher vs. the same time Tuesday on the Nasdaq.
The Innovator IBD 50 ETF (FFTY) did better, losing around 1.1%. At 30.72, the growth-stock-focused ETF still trades around 17% below its all-time peak of 37.12.
Inside Dow Jones: UnitedHealth Is A Blue Chip Leader
UNH stock has been constructing a cup with handle since peaking at 306.71 on Feb. 19.
The shape of the cup actually contains elements of a double bottom, too. The base also displays bullish symmetry.
Find the proper buy point by adding 10 cents to the highest price (304) within the handle. A strong gain past 304.10 in rising or heavy turnover would boost the probability of large-cap growth stock investors making money on a breakout.
UnitedHealth's 92 Earnings Per Share Rating is leadership-quality. It means that long- and short-term profits have grown at a faster rate than 92% of all stocks in the IBD database.
According to IBD Stock Checkup, UNH stock ranks No. 3 in the EPS Rating within the managed care group, behind group peers Cigna (CI) and Anthem (ANTM).
Bank Stocks In The Dow Jones Are Turning Into Laggards Again
On the other hand, fellow Dow Jones stock and money-center bank JPMorgan Chase (JPM) slumped further below its falling 50-day line, sliding nearly 2.5%.
Interest rates remain ultralow.
The yield on the benchmark U.S. Treasury 10-year bond stands near 0.65%, down from 1.88% at the start of 2020.
Lower interest rates generally pinch the profits of banks that rely heavily on the spread between what they pay to accumulate deposits and borrow money from the Federal Reserve, and what they charge on mortgage, car and business loans.
"(Federal Reserve Chair) Powell once again reiterated that the Fed is extremely reluctant to cut interest rates below zero. Certainly, in the U.S., the benefits of marginally lower short rates would likely be swamped by the dislocation negative rates would create to prime money market funds and the repo market," Seema Shah, chief strategist at Principal Global Investors, told IBD in an email.
"What's more, experience outside the United States suggests that slashing rates has distorted financial markets, crippled bank lending and threatened pensions systems worldwide. Indeed, central banks have been reconsidering the wisdom of negative policy rates, with the Swedish Riksbank exiting negative rates altogether," she added.
Chip stocks pulled back sharply.
Ceva (CEVA), part of the fabless semiconductor industry group, dropped more than 6% for a third straight decline. Just on Monday, the small cap rose as much as 11% past a 33.04 buy point in an 11-week cup with handle.
Late Tuesday, the expert in programmable digital signal processing cores posted a profit of 11 cents a share in the first quarter vs. a penny earned a year earlier. Sales accelerated 39% to $23.6 million; growth has now accelerated for a fourth quarter in a row. In Q1 of 2019, the top line fell 3%, then rose 5%, 10% and 32% in the next three periods.
Beyond Dow Jones: On IBD Live
Meanwhile, IBD Live on Wednesday highlighted emerging strength in the life sciences sector. Amgen (AMGN), Bristol Myers Squibb (BMY) and AbbVie (ABBV) are all showing strong gains in the current quarter.
AbbVie is still working on the right side of a potential cup. Amgen is close to clearing a 255.05 buy point in a large cup with handle. Read more about the chart action and fundamentals on BMY in this new IBD 50 Stocks To Watch story.
According to IBD Stock Checkup, Amgen holds a 96 Composite Rating on a scale of 1 (destroyed) to 99 (delightful). This rating tracks key fundamental, technical and institutional ownership factors. When the stock market is in the early stages of a new tradable rally following a major correction, focus your watchlist on companies that sport a 95 Composite score or better.
This means you're homing in on the top 5% of the entire IBD stock database.
Amgen made a run of four straight up weeks in price after bottoming out at 177. Multiple up weeks in a row bespeak serious institutional accumulation, especially if the weekly gain comes in higher or above-average turnover.
A B- Accumulation/Distribution Rating for Amgen hints at net buying by mutual funds, banks, hedge funds, university endowments and the like over the past 13 weeks.
Please follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth stocks, buy points, breakouts, sell rules and market insight.
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