Dow Jones Futures: Stock Market Rally Rebounds, Netflix Crashes On Subscriber Fall, Tesla Earnings On Tap

Dow Jones futures fell overnight, along with S&P 500 futures and especially Nasdaq futures, as Netflix (NFLX) plunged on surprise subscriber decline. The stock market rally showed strong gains Tuesday, while Treasury yields kept rising and energy prices tumbled.

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The S&P 500 reclaimed a key level, but a lot of Tuesday’s big winners were beaten-down stocks. The market rally remains under pressure and divided. Investors should keep exposure modest and focus on leading sectors.

Netflix Subscribers Fall

Netflix earnings topped views, while revenue fell short. But the real news is that Netflix subscribers fell by 200,000 in Q1, its first decline in more than a decade. Analysts had expected a gain of roughly 2 million. And for Q2, Netflix sees subscribers down by another 2 million.

Subscription price hikes and growing streaming competition from the likes of Walt Disney (DIS) and HBO Max parent Warner Bros Discovery (WBD) are taking a toll on Netflix, which already has very high penetration among U.S. households.

Netflix signaled it’ll crack down on “password sharing,” seeking to convert more paying customers. It’s also open to a lower-priced, ad-supported model.

NFLX stock plunged 26% in extended trade, signaling a move below the March 2020 coronavirus low and nearing its September 2019 lows. Shares peaked in November 2021, gradually at first. Netflix stock crashed 22% on Jan. 21 on weak subscriber guidance that turned out to be still too bullish.

DIS stock fell 4% overnight, threatening a fresh 52-week low. WBD stock declined modestly.

Tesla Earnings Loom

Tesla earnings loom Wednesday night. On Tuesday, Tesla Shanghai restarted production after being shut down for three weeks. But a return to full output will likely take several weeks. Tesla stock rose 2.4% to 1,028.15 on Tuesday as it works on a 1,152.97 cup-with-handle buy point.

Twitter Deal Latest

Meanwhile, TWTR stock fell 4.7% to 46.16 a day after jumping 7.5%. Tesla CEO Elon Musk reportedly is “scrambling” to find partners to help him with his Twitter (TWTR) takeover bid. Musk is willing to put up another $10 billion to $15 billion, according to the New York Post, on top of the money spent on his current 9.1% TWTR stake. Musk has offered $43 billion, or $54.20 a share for Twitter, but there’s been no formal bid. Blackstone (BX) and Brookfield Asset Management (BAM) aren’t interested in financing a Twitter deal, The Financial Times reported.

Stocks In, Near Buy Zones

Meanwhile, travel stocks continued to advance, with the U.S. government and airlines dropping mask requirements on flights, giving airlines another lift. Marriott International (MAR) moved just out of a buy zone. Avis Budget (CAR) is closing in on a buy point.

Medical products makers Edwards Lifesciences (EW) and Stryker (SYK) flashed early buy signals, closing in on official breakouts.

Warehouse operator Prologis (PLD) popped on strong Q1 results and 2022 guidance, as property REITs do surprisingly well.

Tesla (TSLA) and EW stock are on IBD Leaderboard. MAR stock and Tesla are on the IBD 50.

The video embedded in this article highlights Extra Space Storage, Edwards Lifesciences and CAR stock.

Dow Jones Futures Today

Dow Jones futures dipped 0.1% vs. fair value, with Disney stock taking a toll. S&P 500 futures lost 0.5%. Nasdaq 100 futures retreated 1.1%, with NFLX stock leading techs lower.

The 10-year Treasury yield popped 6 basis points to 2.97%, closing in on 3%.

Crude oil prices rose slightly.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally had a strong bounce Tuesday, closing near session highs. The Dow Jones Industrial Average climbed 1.5% in Tuesday’s stock market trading. The S&P 500 index advanced 1.6%. The Nasdaq composite popped 2.15%. The small-cap Russell 2000 rose 2%.

U.S. crude oil prices tumbled 5.2% to $102.56 a barrel. Natural gas futures skidded over 8%.

The 10-year Treasury yield rose 5 basis points to 2.91%, hitting a fresh three-year high. The two-year yield shot up 12 basis points to 2.58%.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) rallied 2.75%. The VanEck Vectors Semiconductor ETF (SMH) rose 2.1%.

SPDR S&P Metals & Mining ETF (XME) edged up 0.1% and the Global X U.S. Infrastructure Development ETF (PAVE) gained 2.1%. U.S. Global Jets ETF (JETS) ascended 2.8%. SPDR S&P Homebuilders ETF (XHB) leapt 3.8%. The Energy Select SPDR ETF (XLE) sank 0.8% and the Financial Select SPDR ETF (XLF) advanced 1.4%. The Health Care Select Sector SPDR Fund (XLV) added nearly 1%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) popped just over 4% and ARK Genomics ETF (ARKG) rebounded 1.9%. Tesla stock is the No. 1 holding across ARK Invest’s ETFs.

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Travel Stocks

Travel stocks have surged for the past four sessions, after Delta Air Lines (DAL) topped Q1 views and said higher fares haven’t hurt demand. The end of mask requirements on flights is another bonus.

MAR stock rose 3.1% to 188.78, hitting a record high. Marriott stock is now extended from the 179.40 cup-with-handle buy point, according to MarketSmith analysis. Shares could still pull back into the 5% chase zone. But investors did have chances in the prior three sessions to buy MAR stock. The relative strength line has been hitting new highs for several days.

Hilton Worldwide (HLT) is just in a buy zone.

CAR stock raced 7.1% higher to 285.35. On Nov. 2, the car-rental giant exploded meme-style following powerful earnings. But if one excludes that crazy day, then investors could view the Avis stock chart as a cup-with-handle base with a 299.43 buy point. Arguably Avis stock cleared a short trendline early entry within that handle on Tuesday, though volume was very low. Also, CAR stock remains far above its 10-week line. Ideally, CAR stock would pause, with its handle becoming a proper base as the moving averages race to catch up.

Medical Products

EW stock climbed 4.4% to 124.52, moving just below a 125.21 cup-with-handle buy point. Shares broke the downtrend of that handle, offering an early entry. EW stock was added to Leaderboard on Tuesday and was Monday’s IBD Stock Of The Day.

SYK stock popped 4.9% to 271.66, reclaiming its 50-day and 200-day lines and closing in on a 274.23 handle buy point. But, like Edwards Lifesciences, the orthopedic implants specialist broke the downtrend of a handle, offering an early entry. SYK stock has been consolidating since last September and has been going sideways for the past year. Stryker earnings are due on April 28.

Shockwave Medical (SWAV) is also working on a handle buy point, with several other medical products, device and systems makers moving solidly higher Tuesday.

The REIT Stuff

PLD stock rose 4% to 169.56, rebounding from its 21-day moving average after reporting strong results and guidance before the open. That’s now extended from a 160.95 cup-with-handle buy point. But investors could use a recent pullback as an alternate, high handle. That would offer a 170.96 buy point, or an early entry around 166.48.

REITs typically struggle as Treasury yields rise. But property REITs are offering solid earnings growth in a difficult market to go along with decent dividends.

Market Rally Analysis

The stock market rally showed some fight Tuesday. The S&P 500 moved back above its 50-day line and its 21-day exponential moving average. The Dow rebounded from its 50-day toward its 200-day.

The Nasdaq rallied back near its 50-day. The Nasdaq getting above its 50-day line and the S&P 500 above its 200-day would be key steps. After that, the major indexes would need to push past their late March peaks, which would likely coincide with the Nasdaq reclaiming its 200-day.

A tech-led market rally despite another jump in Treasury yields is positive, but that hasn’t been the trend over the past several weeks. How will stocks react to a 3% handle on the 10-year yield? The October 2018 peak of 3.25%, a 12-year high, isn’t far away.

Stock futures suggest some weakness overnight, though it’s unclear if that will spread beyond Netflix stock, Disney and the streaming world.

A lot of Tuesday’s big winners were below their 200-day lines. That might explain why there were few actionable stocks.

The broad commodities sector remains a bright spot, with energy stocks holding up well despite Tuesday’s big decline in oil and natural gas prices.

Medicals are faring well and starting to broaden out beyond drugmakers and health insurers. Travel is an emerging leading group, though the sector has been headline-driven for a long time. REITs are doing well.

Traditional growth stocks continue to struggle, with a few exceptions. Tesla stock is looking OK, but its chart is messy heading into earnings. Cybersecurity names seem interesting.

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What To Do Now

Once again, don’t get too excited by one good day in a weak market. The market rally remains under pressure and divided. Investors should continue to focus on leading areas of the market. You might consider taking positions in, say, the travel or medical products space, to diversify holdings.

But exposure should remain modest overall. Until the market rally shows sustained, broad strength, investors should not be aggressive. Keep working on watchlists, looking for stocks setting up or pulling back bullishly. That can help you catch emerging leadership before it moves out.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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