Futures on the Dow Jones will open on Sunday evening, along with futures on the S&P 500 and Nasdaq.
Another attempt at a stock market rally 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 from resistance. Along with the warnings of Advanced micro-systems (AMD) and SVC Health (CVS) which beat their shares at the end of the week, the major indexes wiped out most of their gains.
Although the market’s attempted rally is not over, the Dow Jones, S&P 500 and Nasdaq are near bear market lows. Investors should be extremely cautious in the current environment.
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, then plunged on Friday as AMD triggered a 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 open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
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 was shaken off by the end of the week, back near bear market lows.
The Dow Jones Industrial Average rose 2% in stock trading last week. The S&P 500 index climbed 1.5%. The Nasdaq composite 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% as AMD’s PC demand warning sent Mr. Softy skidding 5.1% on Friday. Shares of Google and Amazon soared 3.2% and 1.4%, respectively, also paring strong weekly gains on Friday.
The 10-year Treasury yield rose 8 basis points to 3.88%, up for a 10th consecutive week. This is after falling to 3.56% intraday on Tuesday, testing its 21-day line. The 10-year Treasury yield is nearing 12-year highs, nearly 4%, set in late September.
The US dollar, which was down sharply at one point, rallied 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. Meanwhile, US shale operators remain cautious about stepping up drilling.
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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 sold hard on Friday following AMD’s warning and a broader U.S. ban on chip technology exports to China. AMD stock is a big SMH holding with On Semiconductor a notable component.
Reflecting more speculative historical stocks, ARK Innovation ETF (ARKK) fell 0.6% last week and ARK Genomics ETF (ARKG) fell 0.15%, after both sold 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 Global X US Infrastructure Development ETF (PAVE) jumped 3.4%. The US Global Jets ETF (JETS) climbed 3.7%. The SPDR S&P Homebuilders ETF (XHB) rose 4.5%. ETF Energy Select SPDR (XLE) jumped 13.6% and ETF Financial Select SPDR (XLF) 1.9%. The SPDR healthcare sector fund (XLV) climbed 1.25%, with LLY stock a big holding.
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Shares plunged 16% last week to 223.07 after Tesla’s record third-quarter deliveries fell short of sights amid concerns over 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 still above late May lows of 206.84, but not by much.
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 moving average – as Treasury yields and the dollar rebounded. Selling intensified on Friday with the strong jobs report, pushing yields and the dollar even higher.
And now? The stock market rally attempt is still in effect until the major indices break through their recent lows. But the Dow, S&P 500 and Nasdaq are not far behind.
A follow-up day could still come at any time to confirm the uptrend of the market. That would be a positive sign. 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?
On the other hand, the risks are high that the bear market will collapse for another leg down.
The market rebounded early in the week on hopes that the Federal Reserve would slow rate hikes, perhaps in part because of tensions overseas. The decline in job vacancies and the small increase in rates in Australia reinforced this case. But Fed officials continue to insist they are not backing down, as Friday’s jobs report was far too hot. All in all, the likelihood of a fourth consecutive 75 basis point rate hike in November, already elevated, has increased 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.
In addition to the Federal Reserve and recession worries, earnings season could be a minefield. The warnings from AMD and CVS follow several other high-profile advance announcements, with earnings set to kick in next week. Even after a long bear market and clearly tough trading conditions, markets still haven’t priced in the bad news, with AMD and CVS shares falling more than 10% on Friday.
Energy stocks look strong as crude oil prices soar. However, many seem extended after big swings.
Meanwhile, soaring oil prices could be bad news for the broader market. Higher energy costs, especially gasoline prices, will make it harder for the Federal Reserve to contain inflation. Gas prices had already rebounded significantly, especially in California, on various refining issues.
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 been giving out buy signals in recent days were big losers on Friday. 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.
Stocks of Apple, Microsoft and other tech titans aren’t down, but they certainly aren’t boosting major indexes.
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What to do now
The case for being all-cash or all-cash remained strong even at weekly highs, and is even stronger now. The attempt to rally the market is shaken. Indices may soon cross below bear market lows.
If you’ve recently bought new positions – outside of the energy sector and some doctors – you may have already had to cut or quit them. Even if you only hold pilot positions, do not let the losses increase. If you have gains, you may want to lock in some of them given general market conditions.
Keep working on your watchlists and stay engaged. The attempted market rally could still come alive, which would likely trigger buy signals for a large number of stocks. So focus on the stocks that are building up. But also maintain a broader list of strong stocks that are 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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