The stock market woke up on the first trading day of 2024 with a serious hangover after enjoying fizzy gains in 2023. Microsoft (MSFT) led a brigade of top growth stocks that enjoyed solid advances last year but are now testing a key level of technical support.
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Microsoft, the juggernaut in enterprise software, cloud computing, gaming and most recently software applications driven by artificial intelligence, slumped 1.8% and hit a session low of 366.77, below its rising 10-week moving average.
After a strong run-up, true stock market leaders eventually pull back to their 10-week lines. In a solid uptrend, institutions take the opportunity to add shares to their positions in the stock near or at the 10-week moving average.
On the other hand, when the stock market takes more than a short break and makes a significant correction, a big undercut of the 10-week line can unleash a key defensive sell rule.
Microsoft, which finished 2023 with a very impressive 57% gain, is now testing the top of a base that revealed elements of a double bottom and a 340.86 entry point.
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Meanwhile, the sell-off in the stock market was fairly broad.
The Dow Jones Industrial Average outperformed other indexes with a relatively mild loss of 0.2% about an hour before the regular session’s close.
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That’s far better than declines of 1% by the S&P 500 and 2.1% by the Nasdaq composite. The Russell 2000 backtracked 0.9% after rising 15.1% last year.
All “Magnificent Seven” megacap tech leaders fell in the range of 0.2% to 3%.
Among those seven, Meta Platforms (META) fared worst. But volume was running below average, just like Microsoft.
On a MarketSmith daily chart, Meta has faded to a test of buying support at the key 21-day exponential moving average.
Once a leading stock has broken out, it tends to stay above the 21-day line and even pull this moving average higher along the way.
Among other stock market leaders, DoorDash (DASH), Latin American e-commerce heavyweight MercadoLibre (MELI), cruise ship operator Royal Caribbean (RCL) and logistics tech innovator Samsara (IOT) also need careful monitoring. DASH and MELI are currently testing their 10-week lines, while the latter two are getting close to a potential test.
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Selling Intensifies
Volume was running higher on both main exchanges vs. Friday’s ultra-quiet session. Nonetheless, Monday’s sell-off is setting up as a distribution day, or bout of intense professional selling. Please see the latest Big Picture column for the exact distribution day count as one measure of the strength of the uptrend.
Elsewhere, the yield on the key U.S. Treasury 10-year bond jumped 8 basis points to 3.94%. At its 2023 peak back in October, the 10-year note yielded as high as 4.99%.
Watch for future reactions by bond traders with important news on U.S. inflation, manufacturing and the labor market later this week, including Friday’s nonfarm payrolls report
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Crude oil rose on increased tensions caused by the appearance of an Iranian military ship entering the Red Sea. However, oil futures sank 1.6% to $70.51 a barrel on the Nymex.
Gold traded flat at $2,070 an ounce. Silver dropped 0.8% to $23.89.
Bitcoin stood out on the upside. ProShares Bitcoin Strategy (BITO) gapped up and soared 7.3% in heavy trading. BITO has hit the 20%-25% profit-taking zone after a breakout past 17.70 in an elongated double bottom-style base.
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Please follow David Chung on Twitter: @saitochung and @IBD_DChung
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Source: investors.com
