Dow Jones Futures: Apple Leads Earnings Wave, Fed Rate Hike Looms; What to do now
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. The stock rallied strongly last week, breaking above some key resistance. The techs pulled back on Friday Snap (SNAP) and other poor earnings.
apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL), Amazon.com (AMZN) and Facebook parent Meta platforms (META) headlined a massive week for earnings.
META shares and Google sold off hard Friday on Snap results and a lack of guidance. Microsoft stock fell back to its 50-day line. Amazon just trimmed big weekly gains. But Apple stock is the one of the five near the 200-day line, and it has no obvious buy point in sight.
Meanwhile, the Federal Reserve is meeting, with another big interest rate hike of 75 basis points likely to come on Wednesday. Guidance for future moves will be key. Investors have started to wind down the rate hike in September, with limited tightening after that. This is largely because the economy has slowed down rapidly, perhaps even falling into a recession. A recession, along with continued high inflation, is not a good mix for corporate profits.
The Fed recession may already be here; What it means for the S&P 500
While the recent action in the major indexes has been promising, investors should still be cautious when adding exposure.
Not many leading stocks have flashed buy signals. Meanwhile, several promising stocks have seen sudden sell-offs, including Dollar tree (DLTR), Country house (LNTH), Agilon Health (AGL) and Li Auto (LI), which forces tough decisions for investors.
LNTH stock is on the IBD Leaderboard, while Agilon exited on Friday. Li Auto stock and Agilon are on the IBD 50. MSFT stock and Google are on the IBD Long-Term Leaders.
The video embedded in the article reviewed the important market action, while analyzing it Cross-country health services (CCRN), Li Auto and DLTR stock.
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 1[ads1]00 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 rally had strong weekly gains, even with Friday’s retreat.
The Dow Jones Industrial Average rose 2% in last week’s trading. The S&P 500 index rose 2.6 percent. The Nasdaq index rose 3.3 percent. The small-cap Russell 2000 jumped 3.7%.
The 10-year Treasury yield fell 15 basis points to 2.78%, plunging 25 basis points Thursday-Friday. The Treasury yield curve is inverted from one-year to 10-year. The six-month Treasury rate, at 2.94%, is significantly above the 10-year Treasury rate. All this reflects increasing recession risk.
U.S. crude oil futures fell nearly 3% to $97.59 a barrel last week.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) gained 0.6% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.45%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gained 5.4%, with MSFT stock as a key component. The VanEck Vectors Semiconductor ETF ( SMH ) rose 5.6%.
The SPDR S&P Metals & Mining ETF ( XME ) jumped 1.9% last week. The Global X US Infrastructure Development ETF (PAVE) rose 5%. The US Global Jets ETF (JETS) rose 0.9%. The SPDR S&P Homebuilders ETF (XHB) rose 6%. The Energy Select SPDR ETF (XLE) rose 3.7% and the Financial Select SPDR ETF (XLF) rose 3%. The Health Care Select Sector SPDR Fund ( XLV ) fell 0.3%.
Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) rose 4.85% last week and the ARK Genomics ETF ( ARKG ) 1.2%, although both gave up more than half of their weekly gains on Friday.
Top five Chinese stocks to watch now
Stock Shakeouts, Shakedowns
When a leading stock sells at or below the buy point, investors face a difficult decision: hold, exit or trim the position. There is not necessarily a “correct” answer. Sometimes the stock will bounce right back, others will continue to fall – perhaps after a short bounce. A more cautious approach may make more sense in the current volatile market. Buying near the entrance can also offer a little more cushion.
DLTR stock had been gradually rising in a buy zone this week when it suddenly plunged nearly 5% intraday on Thursday. Shares fell slightly short of the 166.45 buy point, but found support at the 21-day line, according to MarketSmith analysis. At the close, the DLTR share was down just under 1%. On Friday, Dollar Tree stock briefly moved out of the buy zone before closing little changed.
LNTH stock hit a record high on Wednesday, just breaking out of a cup base but closing nearly 14% above its 50-day mark. On Thursday, Lantheus shares fell 7.8% intraday, although it pared losses to 3.1%. A quick shakeout? Maybe not. LNTH shares fell 4.5% on Friday.
Agilon shares broke out of a bottom base on Thursday with a buy point of 27.12. But shares fell 8.3% to 25.18 on Friday.
Li Auto stock bounced off its 21-day line on July 13th and made solid gains by Monday July 18th. But shares fell below their 21-day line on Tuesday, although they rallied to close above that key level, down 4.7%. On Wednesday, the LI share fell 3.7%, right at Tuesday’s lowest level. On Thursday, Li Auto almost retook its 21-day line, but then sold off convincingly on Friday. Ultimately, it was a bearish downside reversal week for the Chinese EV maker.
Market rally analysis
The share rally made significant progress in the last week. The major indices came above the 50-day and 10-week moving averages, which had been a major stumbling block in recent months.
Weak results from Snap, Verizon (VZ), Seagate technology (STX) and Intuitive surgical (ISRG) provided a catalyst for Friday’s retreat.
But the market was without a doubt reason for a pullback, especially the Nasdaq and growth stocks. It is better to get the withdrawal before the full crushing of the earnings.
If everyone is bullish on earnings, that’s a recipe for big sales of actual results. That may be especially true this time, with guidance particularly unclear with the rapidly deteriorating economy.
Friday’s retreat underscores how treacherous the earnings season is, and not just for the company. The Snap earnings report hammered Meta and Google shares, along with other online ad-dependent firms and the broader market.
Friday’s retreat also shows the risk of bottom fishing, buying depressed growth stocks when they crash back.
It’s possible that the market bottomed out in mid-June, but that doesn’t necessarily mean it’s a quick and easy march to all-time highs and beyond. The market bottomed in late 2002 and late 2008, but did not make a sustained run for several months.
In addition to tech titans Apple, Microsoft, Meta, Google and Amazon, other notable results this week include Exxon Mobil (XOM), Chevron (CVX), Merck (MRK), Pfizer (PFE), General Motors (GM) and Qualcomm (QCOM).
Apple, Microsoft, Merck and XOM stocks are all Dow Jones components.
Time the market with IBD’s ETF market strategy
What to do now
Investors should still have at most modest exposure. There haven’t been many good stocks to buy, and they can be prone to sudden sell-offs. Earnings season and the Fed meeting can send the market, various sectors and individual stocks in all possible directions.
So be extra careful in the next few days. If you are making new purchases, look for early buying opportunities and try to buy as close to these listings as possible.
Keep working on your watchlists. The market recovery has shown some strength. You will be ready to take advantage.
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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