The Dow Jones Industrial Average capped the latest retreat in the current stock market with a mild loss of less than 0.1% Friday. Investors apparently stomached the surprise drop in net payrolls growth for February in the U.S. Some institutions seemed to treat the early decline as a buying opportunity.
XAt one point on Friday, however, the blue chip gauge expanded its total loss in five straight down sessions to as much as 3%.
That 3% downdraft is still mild compared with a 20.8% blast higher from the post-Christmas low of 21,712. And, since IBD's Jan. 4 Big Picture column noted a turning point in the stock market with a follow-through on the same day, the Dow Jones Industrial Average also shows an advance of almost 12% from the Jan. 4 close of 23,433.
The S&P 500 and Nasdaq composite both lost about 0.2% Friday. Both major indexes fell more than 2% for the week, ending a 10-week winning streak for the latter. The S&P 500 had risen five weeks in a row.
The Innovator IBD 50 (FFTY) cut an early 1.7% loss to less than 0.3%, but still declined 3.5% for the week. The growth stock-focused exchange traded fund has climbed as much as 31.9% from its Christmas Eve low but is still trading on the south side of its long-term 200-day moving average.
FFTY, which gives investors a one-click method to invest in stocks that make up the IBD 50, gained 34% in 2017 and fell 16.8% in 2018.
Employment Report Moves Equities
John Lynch, chief investment strategist at LPL Financial, pointed out that the February U.S. payrolls report gave investors a reason to view the new data from a "glass is half full" angle. For starters, the February report of just 20,000 net new jobs added got impacted by the fact that early 390,000 non-agricultural employees were unable to work due to weather conditions.
Plus, payroll gains in January saw an upward revision to a net jobs increase of 311,000. February average hourly wages rose 3.4% vs. a year ago.
"While payroll growth has slowed, jobs gains over the past few months have been unexpectedly strong. Labor market strength remains a bright spot in the U.S. economy, and wages are growing at a healthy pace," Lynch wrote in a note to clients.
Small caps also rebounded off session lows. The S&P SmallCap 600 also edged fractionally lower. At 934, the 600 finished the first full week of trading in March with a year-to-date gain of 10.6% vs. a 9.4% lift for the S&P 500.
Volume dropped on both main exchanges vs. the same time Thursday.
These Growth Stocks Show Strength; Can They Outperform The Dow Jones?
Meanwhile, Brazilian fintech firm StoneCo (STNE), Planet Fitness (PLNT), Fortinet (FTNT), Zscaler (ZS) and China's ZTO Express (ZTO) showed relative strength or the potential to lead the stock market higher when the pullback ends.
Fortinet and ZTO, up more than 2% for the week, have been crafting a new cup-style base.
ZTO, a leading package delivery service in China, reports fourth-quarter results on Tuesday. Analysts forecast an 11% drop in earnings to 24 cents a share on a 20% pickup in revenue to $795.6 million. Earnings increased 35%, 70%, 53% and 33% vs. year-ago levels in the prior four quarters.
Fortinet's 7.2% decline for the week is certainly sharp-edged, yet the stock remains above its sharply rising 10-week moving average (drawn in red in the accompanying chart) for now, a good sign. A new handle on the large cup pattern may be in progress. Fortinet has now set a new proper buy point of 88.70, 10 cents above the handle's high.
As noted in this Investor's Corner column, when the market is in a confirmed uptrend, a good handle generally should not show a drop of more than 8% to 12% from the handle's highest price to its lowest price intraday.
A New Software Sector Leader
Zscaler is one of the newest growth stocks to join IBD Leaderboard. On Jan. 31, the stock cleared a 48.34 buy point in a five-month cup without handle in heavy turnover, ahead of a recent quarterly report. Then the stock produced a new alternate buy point on a furious gap-up in price after posting earnings of 9 cents a share on a 65% leap in revenue to $74.3 million. That marked Zscaler's largest quarter on the top line in its history.
In 2018, the mid-cap growth stock lost 21 cents a share, but this year may mark an inflection point in fundamentals. The Street sees earnings of 12 cents a share in 2019 and 17 cents in 2020, up 42%.
In 2018, companies showcased on Leaderboard rose 11.8% on a portfolio-weighted basis in which full positions take up one-eighth of a model portfolio, be it $10,000, $100,000 or $1 million. A half position takes up one-sixteenth of a portfolio. The S&P 500 fell 6.2% in 2018.
According to IBD Stock Checkup, the San Jose, Calif., innovator in security software for users of virtual private networks gets a strong 98 Composite Rating on a scale of 1 (horrible) to 99 (heavenly). A B+ Accumulation/Distribution Rating points to net institutional buying by fund managers over the past 13 weeks of price-and-volume action.
Hot New IPOs: Analyzing StoneCo
StoneCo attempted a breakout out of a very deep cup that showed the contours of a V-shape, which is a flaw. The stock did not get far past a 32.60 buy point and reversed lower for the week.
In most cases, the best stocks that form a cup base or an excellent cup with handle typically do not correct more than 30% to 33% from the base's high to low.
Watch for a potential new base to form in the coming weeks or months. Some of the biggest stock market winners in Wall Street history form the base on base en route to new highs and outstanding price gains.
The Street expects fourth-quarter profit to jump 550% to 13 cents a share. Analysts also see full-year earnings vaulting another 150% to 80 cents a share.
Please follow Chung on Twitter at @IBD_DChung for more on growth stocks, chart analysis, breakouts and financial markets.
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