Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
A new attempt at a stock market rally started last week, with big early gains for the Dow Jones and other major indexes. But as hopes of a Fed pivot faded again, Treasury yields rebounded and stocks fell from resistance. Along with warnings from Advanced Micro Devices (AMD) and CVS health ( CVS ) which pummeled its shares late in the week, the major indexes wiped out most of their gains.
Although the attempted market rally is not over, the Dow Jones, S&P 500 and Nasdaq are near bear market bottoms. Investors should be extremely cautious in today’s environment.
Vertex stock, Neurocrine Life Sciences (NBIX) and Eli Lilly (LLY) trades right around buy points. NBIX stock and Vertex Pharmaceuticals (VRTX) is on the IBD Leaderboard.
Tesla (TSLA), Enphase Energy (ENPH) and At Semiconductor (ON), three stocks that had been close to buy points, sold heavily. TSLA stock sold off on Monday on disappointing deliveries, then continued to slide. Enphase stock briefly gave an aggressive buy signal on Tuesday, then plunged sharply on Wednesday. ON stock closed above a trendline entry on Thursday, then plunged on Friday as AMD triggered a chip selloff.
Megacaps do not help. Microsoft stock, Google parent Alphabet (GOOGL) and Amazon.com (AMZN), all just below their 21-day lines on Thursday, fell sharply on Friday, back toward bear market or near-term lows. apple ( AAPL ), which never reached its declining 21-day, skidded toward near-term lows.
Microsoft (MSFT) and Google shares are on the IBD Long-Term Leaders. ON stock is at IBD 50. Onsemi, Vertex Pharmaceuticals (VRTX) and ENPH stocks are on the IBD Big Cap 20. Vertex was Friday’s IBD Stock Of The Day.
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
Join IBD experts 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 strong start, but was heading towards the end of the week, back near the bear market.
The Dow Jones Industrial Average rose 2% in last week’s trading. The S&P 500 index rose 1.5 percent. The Nasdaq composite rose 0.7 percent after falling 3.8 percent on Friday. The small-cap Russell 2000 rose 2.2%.
Apple shares 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. Google and Amazon shares climbed 3.2% and 1.4%, respectively, also paring solid weekly gains on Friday.
The 10-year Treasury yield rose 8 basis points to 3.88%, rising for the 10th week in a row. That’s after falling to 3.56% intraday Tuesday, testing the 21-day line. The 10-year government yield is approaching 12-year highs close to 4% set at the end of September.
The US dollar, down sharply at one point, rose to a modest weekly gain.
U.S. crude futures rose 16.5% to $92.64 a barrel, rising all five days. The OPEC+ production quota cut of 2 million barrels per day led to gains. Meanwhile, US shale operators remain cautious about increasing drilling.
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 a massive holding. The VanEck Vectors Semiconductor ETF ( SMH ) rose 1.9% but sold off sharply Friday on the AMD warning and an extended U.S. ban on chip technology exports to China. AMD stock is a large SMH holding with On Semiconductor a notable component.
Reflecting more speculative stock stocks, the ARK Innovation ETF ( ARKK ) fell 0.6% last week and the ARK Genomics ETF ( ARKG ) fell 0.15%, after both sold off more than 6% on Friday. Tesla stock remains a large holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) rose 7.3% last week. The Global X US Infrastructure Development ETF (PAVE) rose 3.4%. The US Global Jets ETF (JETS) rose 3.7%. The SPDR S&P Homebuilders ETF (XHB) rose 4.5%. The Energy Select SPDR ETF (XLE) rose 13.6% and the Financial Select SPDR ETF (XLF) rose 1.9%. The Health Care Select Sector SPDR Fund ( XLV ) climbed 1.25% with LLY stock a large holding.
Top five Chinese stocks to watch now
Shares plunged 16% in the past week to 223.07 after record third-quarter Tesla deliveries fell short of views on concerns about Chinese demand. Elon Musk signaled that he will go ahead with Twitter ( TWTR ) takeover, reviving fears that he will sell more TSLA stock to finance the deal. Musk announcing the start of Tesla Semi production failed to give a lift on Friday. Shares are still above late May lows of 206.84, but not by much.
Market rally analysis
The stock market action last week was almost textbook. The major indices, at the lowest of bear markets, recovered sharply after deeply oversold conditions on Monday-Tuesday. But the attempted stock market rally quickly hit resistance at the 21-day moving average – while Treasury yields and the dollar bounced back. Selling intensified on Friday with the strong jobs report, pushing interest rates and the dollar even higher.
So what now? The attempt at a stock market rally is still in effect until the major indices undermine their recent lows. But the Dow, S&P 500 and Nasdaq are not far away.
A follow-up day could still come at any time to confirm the market rally. That would be a positive sign. Investors should be cautious, especially if the indices have an FTD below their 21-day lines. A follow-up before Thursday’s consumer price index also entails additional risk.
New Bear Market Leg?
On the flip side, there is a great risk that the bear market will break down for another leg down.
The market rebounded early in the week amid hopes that the Federal Reserve would slow rate hikes, perhaps in part because of overseas strains. Falling vacancies and Australia’s small rate hike strengthened this case. But Fed officials continue to insist they are not pulling back, while Friday’s jobs report was far too warm. Ultimately, the already high odds of a fourth straight rate hike of 75 basis points in November have strengthened over the past week. Markets are close to locking in at least 50 basis points in December – with a small but growing chance of 75 basis points.
In addition to concerns about the Federal Reserve and the recession, earnings season can be a minefield. Warnings from AMD and CVS follow several other high-profile advance announcements, with earnings set to start next week. Even after a long bear market and clearly difficult business conditions, markets still haven’t priced in bad news, with AMD shares and CVS falling more than 10% on Friday.
Energy stocks look strong as crude oil prices rise. Many, however, seem extended after large runs.
Meanwhile, the rise in oil prices could be bad news for the broader market. Higher energy costs, especially gas prices, will complicate the Federal Reserve’s task of curbing inflation. Gas prices had already risen significantly, especially in California, on various refinery issues.
Some biotech and pharmaceutical names are still doing well, somewhat insulated from financial concerns. But can they make much headway if the broader market heads for new lows?
Meanwhile, some technology and medical product names that had flashed buy signals in recent days were big losers on Friday. Some held up reasonably well, while others made big sales, including ENPH shares and On Semiconductor. Tesla shares, which even a week ago were plausibly near an entry point, plunged toward 2022 lows.
Apple shares, Microsoft and other tech titans aren’t leading the downside, but they certainly aren’t boosting the major indexes.
Tesla vs. BYD: Which EV giant is the best buy?
What to do now
The case for being all or all in cash remained strong even at weekly highs, and is even stronger now. The market rally attempt is on its way. The indices may soon break below the bear market lows.
If you recently bought any new positions—other than the energy sector and select pharmaceuticals—you may have already had to cut or exit them. Even if you only take pilot positions, don’t let your losses mount. If you have gains, you may want to lock in some of it given the general market conditions.
Keep working on your watchlists and stay engaged. The market rally attempt could still come back to life, which is likely to trigger buy signals for a large number of stocks. So focus on stocks that are rallying. But also keep a broader list of strong stocks that are showing relative strength, even if their charts need repair work.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.
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