We’re only two days into 2024 and investors are growing worried that a larger correction looms. The Daily Breakdown tries to make sense of the pullback and explain the benefits of a correction.
Thursday’s TLDR
- Stocks continue to slip in 2024.
- IWM nears potential support.
- Walgreens axes dividend by nearly 50%.
What’s happening?
The Nasdaq 100 is down 2.8% in the first two days of 2024. That’s not exactly bulls’ idea of a strong start.
The VIX has climbed more than 6% in back-to-back sessions and is now trading above 14, while all four major US stock indices are down on the year.
The plus side to all of this? The market really needed a rest.
Remember that the S&P 500 rode into 2024 on a nine-week win streak. We haven’t seen a rally of that magnitude in nearly two decades. Despite the stumble we’ve seen the past few days, the index is still up more than 14% from the October low.
We have more than two straight months of gains and plenty of momentum at our back — and now just three straight days of losses. Notice how quickly a few down days can make us feel. For better or for worse, emotions play a big part of investors.
Personally, I find pullbacks to be refreshing.
Stocks are hard to buy when they become too extended. Referred to as “chasing,” it can leave investors with a high cost basis and a poor entry — leaving them susceptible to notable short-term losses even when the trend is still favorable.
The Takeaway: To reiterate yesterday’s point, we don’t know if this selloff will last a few days or a few weeks — and we have to be prepared for either scenario. Add a few stocks that you like to your watchlist and keep an eye on them. These pullbacks could offer early opportunities to 2024.
The setup — IWM
Small caps have led the rally, with the Russell 2000 climbing more than 26.5% off the October low. It may not have a weekly win streak like the S&P 500, but it’s been a strong performer nonetheless.
Traders often use the IWM ETF to trade the Russell 2000, and the ETF has been pulling back. Down about 5.2% in a four-day skid, this dip is attractive for two reasons.
First, you don’t have to trade the IWM to still find value in how it performs.
Remember, the IWM outperformed its peers — mainly, the SPY, QQQ and DIA — in this rally. Aren’t you curious to see how this market leader will handle the dip?
When we see how leading stocks, sectors and ETFs behave, it can give us clues about how the rest of the market may react.
Second, the IWM is pulling back into an area of potential support.
That’s as it fills the gap from December 13 at $194.64 and as it pulls back to the 21-day moving average.
Could it continue lower, potentially into the high-$180s? Indeed, it’s possible. But let’s see how it handles the $193 to $194 zone first. A bounce here could bode well for other indices, too.
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What Wall Street is watching
GM: General Motors reported a 14.1% increase in US vehicle sales last year, marking its best performance since 2019. This surge was led by a 61% jump in Buick sales and a 13.1% rise in Chevrolet sales.
WBA: Shares of Walgreens are edging higher this morning after the firm reported its fiscal first quarter results. The company delivered a top- and bottom-line beat, with revenue growing 10% year over year to $36.7 billion. Further, Walgreens cut its dividend 48% to help strengthen its balance sheet and cash position.
MBLY: Mobileye stock is getting hammered this morning, falling more than 25% after updating investors with preliminary guidance. While management provided several different outlooks, the main focus is next year’s revenue guidance. Mobileye expects sales between $1.83 billion to $1.96 billion — well below consensus expectations of $2.56 billion.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.