The stock market indexes sliced through Monday’s lows on Tuesday morning and added to weekly losses. A midmorning bounce lifted most benchmarks into the green, with Dow Jones Industrial Average leading the upside. Losses between 4% and 8% in the last week have set off oversold signals but battered investors may not take the bait.
The Dow Jones is trading 1.0% higher at this hour while the S&P 500 has added 0.3%. The Nasdaq composite is still down 0.2%. The Russell 2000 small-cap index has attracted a healthy bid and is up 0.7%.
Volume on the NYSE and the Nasdaq is higher by nearly 10% compared to the same time on Monday.
U.S. Treasurys split across the yield curve, with the 30-year bond bouncing back while the 10-year yield surged to 3.90% after topping 4.0% overnight.
Crude oil retreated, down less than two bucks to $88.11 per barrel.
Chip stocks continued to lose ground, adding to the PHLX semiconductor index ‘s 11% loss, incurred in just four trading days. The index relinquished another 1.4% on Tuesday morning and is slumping near a two-year low.
Will today’s session end with a turnaround-Tuesday reversal?
This long-observed phenomenon refers to the tendency for Tuesday’s stock market to reverse the direction of the last one to three trading days. It makes sense right now because prices are stretched to the downside and oversold bounces should be paths of least resistance.
However, as we’ve seen repeatedly this year, buyers are failing to show up where they’re expected. Sadly, this is typical in a bear market, highlighting IBD’s cautious “market in correction” call.
Bottom line for risk-conscious investors is to keep raising cash and be very selective about new exposure.
Putin’s Stock Market
Vladimir Putin has ordered deadly missile strikes all over Ukraine in retaliation for the bridge blown up in Crimea. Obviously, world markets have been dealing with fallout from the Russian invasion since February but deep complacency has set in, despite apocalyptic warnings from Russia’s leader.
None of this is good for stock market or economic sentiment because it raises the threat of a black swan event, in which something very bad happens in Ukraine and world markets have to deal with the consequences.
Investopedia describes this brutal but rare market occurrence as follows: “A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.”
Clearly, black swan consequences could be doubly worse this time around, given the Fed’s aggressive interest rate tightening policy.
Third-Quarter Earnings Season
Q3 earnings season starts with a bang this week.
The banking sector has displayed a strong tendency to sell off after earnings in recent quarters so any positive reaction will set off a bullish divergence. A bullish divergence is a contrary signal set into motion when price action moves in the opposite direction of crowd expectations.
American Airlines (AAL) raised Q3 revenue guidance in Tuesday’s premarket, lifting expectations ahead of Delta’s report on Thursday morning. AAL stock traded higher by 2.1% in late morning action.
Stock Market Winners And Losers
Facebook parent Meta Platforms (META) fell 2.5% and neared a four-year low after Atlantic Equities downgraded the social media platform to neutral with a $160 price target.
Zoom Video Communications (ZM) bounced strongly after dropping than 4% in Tuesday’s stock market and is now 0.4% higher. Morgan Stanley downgraded the stock from overweight to equal weight, citing the lack of near-term catalysts. ZM stock has fallen 88% from the all-time high posted in October 2020.
Shares are in buy range amid a first test of its 10-week moving average, per Leaderboard commentary. Earnings are due Nov. 4. Shares traded higher by 3%, heading into the lunch hour.
Energy giant ConocoPhillips (COP) fell below a 118.49 buy point in a cup with handle on Monday, dropping 1.4%. So far, there’s no sell signal. The stock’s RS line hit a new high last week, illustrating strong stock-market outperformance. Earnings are scheduled for Nov. 3.
Shares fell 0.5% in the session’s first half, coinciding with the drop in oil prices.
YOU MAY ALSO LIKE: