Dow Jones futures fell slightly on Sunday night, along with S&P 500 and Nasdaq futures. The stock market is open on Monday, but bond trading is closed for Columbus Day.
A stock market rally attempt began last week, with big early gains for the Dow Jones and other major indices. But as hopes of a Fed pivot faded again, Treasury yields rebounded and stocks fell. Along with the warnings of Advanced micro-systems (AMD) and SVC Health (CVS), major indices erased most of their gains by Friday’s close.
Although the market’s attempted rally is not over, the Dow Jones, S&P 500 and Nasdaq are back near bear market lows. Investors should be extremely careful.
vertex inventory, Neurocrine Biosciences (NBIX) and Eli Lily (LLY) trades just around the buy points. NBIX shares and Vertex Pharmaceuticals (VRTX) are on the IBD rating.
You’re here (TSLA), Enphase Energy (ENPH) and On semiconductor (ON), three stocks that were close to buy points, suffered heavy selling. Shares of TSLA sold off Monday on disappointing deliveries, then continued to slide. Enphase stock briefly issued an aggressive buy signal on Tuesday, then plunged sharply on Wednesday. ON stock closed above a trendline on Thursday, but dipped on Friday amid AMD’s chip selloff.
Megacaps don’t help. Action Microsoft, parent company of Google Alphabet (Google T Amazon.co.uk (AMZN), all just below their 21-day lines on Thursday, fell sharply on Friday, heading back towards the bear market or near-term lows. Apple (AAPL), which never reached its 21-day low, skidded to near-term lows.
Microsoft (MSFT) and Google shares are on IBD’s long-term leaders. ON stock is on IBD 50. Onsemi, Vertex Pharmaceuticals (VRTX) and ENPH shares are on the IBD Big Cap 20. Vertex was the IBD stock of the day on Friday.
Dow Jones Futures Today
Dow Jones futures fell 0.4% from fair value. S&P 500 and Nasdaq 100 futures fell 0.55%.
U.S. bond markets will be closed Monday for Columbus Day, so stocks won’t be inspired by Treasury yields.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
An attempted stock market rally got off to a good start, but indices closed near bearish lows on Friday.
The Dow Jones Industrial Average rose 2% in stock trading last week. The S&P 500 index climbed 1.5%. The Nasdaq edged up 0.7% after falling 3.8% on Friday. The small cap Russell 2000 rose 2.2%.
Apple stock rose 1.4% for the week, but fell 3.7% on Friday. Microsoft posted a weekly gain of 0.6%, but slipped 5.1% on Friday on AMD’s PC demand warning. Shares of Google and Amazon soared 3.2% and 1.4%, respectively, also paring strong weekly gains on Friday.
The 10-year Treasury yield rallied for a 10th consecutive week, rising 8 basis points to 3.88%. This is after falling to 3.56% intraday on Tuesday, testing its 21-day line. The 10-year Treasury yield is approaching 12-year highs around 4% set in late September.
The US Dollar rallied after steep losses for a modest weekly gain.
U.S. crude oil futures jumped 16.5% to $92.64 a barrel, up every five days. The OPEC+ production quota cut of 2 million barrels per day fueled the gains.
Time the Market with IBD’s ETF Market Strategy
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.7% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 2.6%, with MSFT stock holding a massive position. ETF VanEck Vectors Semiconductor (SMH) rose 1.9% but fell hard on Friday on AMD’s warning. AMD stock is a big SMH holding with On Semiconductor a notable component.
Reflecting more speculative history stocks, ARK Innovation ETF (ARKK) fell 0.6% last week and ARK Genomics ETF (ARKG) fell 0.15% – after both plunged more than 6 % Friday. Tesla stock remains a major holding in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) jumped 7.3% last week. The US Global Jets ETF (JETS) climbed 3.7%. ETF Energy Select SPDR (XLE) jumped 13.6%. The SPDR healthcare sector fund (XLV) climbed 1.25%, with LLY stock a big holding.
Five best Chinese stocks to watch now
Shares plunged 16% last week to 223.07 after Tesla’s record deliveries were lower than seen in the third quarter amid concerns about demand in China. Elon Musk has signaled that he will go ahead with the Twitter (TWTR), reigniting fears that he would sell more TSLA stock to fund the deal. Musk touting the start of Tesla Semi production failed to provide lift on Friday. Stocks are approaching the late May low of 206.84.
Tesla China delivered a record 83,135 vehicles in September, according to industry data. On Tuesday, investors will learn how much has been sold in China compared to exports.
Market rally analysis
Last week’s stock market action was almost classic. Major indexes at bear market lows rebounded strongly from deep oversold conditions Monday through Tuesday. But the attempted stock market rally quickly hit resistance at the 21-day line – as Treasury yields and the dollar rebounded. Selling intensified on Friday with the strong jobs report.
The attempted market rally is in effect until the major indices break above their recent lows. But the Dow, the S&P 500 and the Nasdaq are not far from doing so.
A follow-up day could still come at any time to confirm the uptrend of the market. But investors should remain cautious, especially if the indices show an FTD below their 21-day lines. Also, a follow-up ahead of Thursday’s CPI carries additional risks.
New stage of the bear market?
Meanwhile, the risks are high that the bear market will break lower.
The market rebound came amid renewed hopes of a slowdown in Fed rate hikes. The decline in job vacancies and the small increase in rates in Australia reinforced this case. But Fed officials insist they are not backing down as the jobs report was too hot. Ultimately, the already high probability of a fourth consecutive 75 basis point rate hike in November has strengthened over the past week. Markets are on course to lock in at least 50 basis points in December – with a small but growing chance of 75 basis points.
Earnings season could be a minefield. AMD and CVS followed several other high-profile warnings as earnings season was about to kick off. Markets still haven’t fully priced in the bad news: AMD and CVS shares fell more than 10% on Friday.
Energy stocks surged as crude oil prices soared. Many seem extended, however.
Soaring oil prices can be bad news for the whole market. Rising gas prices are making it harder for the Fed to control inflation. Gas prices had already jumped, especially in California, on various refining problems.
Some biotech and drug names still work well, somewhat isolated from economic concerns. But can they make much headway if the broader market heads for new lows?
Meanwhile, some tech and medical product names that had issued buy signals at various times in the past week have been selling later. Some held up reasonably well, while others staged big selloffs, including ENPH and On Semiconductor stocks. Tesla stock, which a week ago was likely near an entry point, plunged to 2022 lows.
Shares of Apple, Microsoft and other tech titans aren’t down, but they aren’t boosting major indexes.
Tesla vs. BYD: Which electric giant is the best buy?
What to do now
The case for being all or all cash remained strong even at last week’s highs, and is even stronger now with the market’s tentative recovery shaken.
If you’ve bought stocks recently — outside of energy and some drugs — you may have had to cut them already. Even if you only hold pilot positions, do not let the losses increase. If you have any winnings, you might want to lock some of them.
Keep working on your watchlists and stay engaged. The tentative market rally could still come alive, which would likely trigger buy signals for many stocks. So focus on the stocks that are building up. But also keep a larger list of stocks showing relative strength, even if their charts need some repair work.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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