Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
The stock rally suffered major damage this week in the wake of a hawkish Fed outlook and weak economic data that raised concerns the Federal Reserve will push the economy into recession. The Nasdaq and the S&P 500 ended the week below their 50-day moving averages.
Megacap stocks remain a drag on the major indexes, in particular apple (AAPL) and Tesla ( TSLA ), with TSLA shares plunging to new bear market lows. Amazon.com (AMZN) and Google parent Alphabet (GOOGL) is not too far off the lows. Microsoft didn’t lose too much this week, but fell back from the 200-day line. Nvidia (NVDA), which had been part of a chip rebound, reversed lower, back below key support.
But megacaps do not hide underlying strength. Most stocks that had flashed buy signals in recent days and weeks turned south. Leading sectors also suffered.
Isolate (PODCAST), Commercial metals (CMC), Elf beauty (ALV), Peabody Energy (BTU) and the Dow Jones giant larva (CAT) holds up relatively well. However, none are actionable right now.
Investors should be cautious about making purchases in the current market, but focused on trimming exposure and building watch lists.
The video embedded in this article reviewed the market action in depth, while also analyzing Insulet, Elf Beauty and CAT stocks.
Dow Jones Futures today
Dow Jones futures open at 6 p.m. ET, 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
The stock market rallied on Tuesday morning, but then sold off hard, ending the week with heavy losses.
The Dow Jones Industrial Average fell 1.7% in last week’s trading. The S&P 500 index fell 2.1 percent. The Nasdaq composite fell 2.7 percent. The small-cap Russell 2000 gave up 2.4%.
The 10-year government yield fell 9 basis points to 3.48%. Despite the hawkish Fed talk, markets expect a rise in the February quarter and in March, but with an increasing chance that it will not move in March.
U.S. crude oil futures rose nearly 5% to $74.29 a barrel last week.
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Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) erased big early gains to end the week up 0.5%, with MSFT stock a big holding. VanEck Vectors Semiconductor ETF (SMH) staged its own week of reversal outside the downside, losing 2.9%. Nvidia stock is a top SMH component.
ARK Innovation ETF ( ARKK ) reflects more speculative stock stocks, falling 4% last week, just above a five-year low. ARK Genomics ETF ( ARKG ) fell 0.4%. Tesla stock remains a large holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.6% last week. Global X US Infrastructure Development ETF (PAVE) lost 2.6%. The US Global Jets ETF (JETS) fell 3.6%. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.4% but closed near weekly lows. The Energy Select SPDR ETF (XLE) retreated 2% and the Financial Select SPDR ETF (XLF) gave up 2.5%. The Health Care Select Sector SPDR Fund ( XLV ) fell 1.8% after approaching a record high on Tuesday.
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Megacap stocks: From mediocre to meltdown
Dow Jones tech titan Apple shares shed 5.4% for the week, to 134.51. AAPL breached October-November lows, with the June bear market at 129.04 up next. Fellow Dow component Microsoft fell 0.3% to 244.69, but after retreating from 263.92 on Tuesday morning as it ran into the 200-day line. Amazon shares fell just 1.4% to 87.66, but fell from weekly highs of 96.25 to close near the Nov. 9 bear market low of 85.87. Google shares fell 2.8%, reversing lower from Tuesday’s highs. Nvidia moved above its 50-day line early in the week, but ended up down 2.5%.
Tesla stock was the big loser, plunging 16.1% to 150.23, its lowest since November 2020. It was the worst weekly decline since the Covid crash in March 2020. China demand concerns, Elon Musk’s latest TSLA stock sale and Musk’s Twitter focus weighs. on shares.
Tesla will build a new car factory in northeastern Mexico, Bloomberg reported Friday night, with an announcement likely in the coming days. It is unclear which vehicles the factory can produce. A factory in Mexico would offer relatively lower costs compared to Tesla’s factories in Fremont, Austin and Berlin, while still being close to the US
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Market rally analysis
Within a few days, the stock market rally abruptly shifted from moving above a trading range to falling below. The weekly percentage losses on the major indexes were large, but the damage was far worse.
Shortly after Tuesday’s open, all the major indexes hit rally highs on a tame inflation report, with the S&P 500 back above its 200-day line and the Dow Jones at its best level in nearly eight months. But indexes pared their gains, with the S&P 500 closing below the 200-day mark. On Wednesday, key indexes turned lower as the Federal Reserve and Fed chief Jerome Powell signaled more interest rate hikes ahead.
On Thursday, selling intensified due to weak economic data that increased fears of a recession. The Nasdaq and Russell 2000 fell below their 50-day lines, while the S&P 500 and Dow Jones broke below their 21-day lines. All sank to their worst levels in over a month, undercutting weeks of sideways trading.
On Friday, the S&P 500 fell below the 50-day mark. The Dow is almost there.
It was a big, negative off week for all the major indexes, with highs and lows exceeding the range of the previous four weeks.
Leading stocks have been broken, with few exceptions. Industrial, solar, medical, travel and various chip and network names all come under modest to intense pressure.
Megacap stocks remain clear laggards overall. Tesla shares continue to plunge to new two-year lows. Amazon stock is just above bear market lows, while Google is moving in that direction. AAPL shares fell to their lowest level in nearly six months, with low bears in sight.
Microsoft stock and Nvidia may not be laggards, but they’re not leaders either. Both are below their 200-day lines.
Perhaps this uptrend is a bear market rally that has run its course, with indices heading back towards their October lows. Perhaps the S&P 500 will recover quickly or be range bound for an extended period.
The only thing that is clear is that the market is not working well right now.
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What to do now
Investors should reduce exposure due to the deteriorating overall market and performance of most individual stocks.
While under pressure, there is still a market upswing. A few good days could bolster confidence in the uptrend and bring more stocks back into buy zones. Of course, even in that scenario, investors should be cautious about new purchases, given the rally’s pattern of pulling back and erasing solid gains.
So stay engaged. Continue working on watchlists. Focus on stocks that hold key moving averages and support levels and generally show strong relative strength, such as Caterpillar, Insulet and ELF stocks.
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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