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Dow Jones Futures Loom: What Will an Ailing Market Rally Discover on Columbus Day?




Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. The stock exchange is open on Monday, but bond trading is closed for Columbus Day.




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An attempted stock market rally began 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. Along with warnings from Advanced Micro Devices (AMD) and CVS health (CVS), the major indexes wiped out most of their gains by Friday’s close.

Although the attempted market rally is not over, the Dow Jones, S&P 500 and Nasdaq are back near bear market bottoms. Investors should be extremely cautious.

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, but plunged on Friday amid AMD’s chip sales.

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 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.

U.S. bond markets will be closed Monday for Columbus Day, so stocks will not take the cue from Treasury yields.

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 indexes closed Friday near bearish bottoms.

The Dow Jones Industrial Average rose 2% in last week’s trading. The S&P 500 index rose 1.5 percent. The Nasdaq 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% but slipped 5.1% on Friday on AMD’s PC demand warning. Google and Amazon shares climbed 3.2% and 1.4%, respectively, also paring solid weekly gains on Friday.

The 10-year government yield rose for the 10th consecutive week, up 8 basis points to 3.88%. That’s after falling to 3.56% intraday Tuesday, testing the 21-day line. The 10-year government yield is approaching 12-year highs around 4% set at the end of September.

The US dollar rebounded from heavy losses for 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.


Time the market with IBD’s ETF market strategy


ETFs

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 fell sharply Friday on the AMD warning. AMD stock is a large SMH holding with On Semiconductor a notable component.

Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) fell 0.6% last week and the ARK Genomics ETF ( ARKG ) fell 0.15% — after both plunged 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 US Global Jets ETF (JETS) rose 3.7%. The Energy Select SPDR ETF (XLE) rose 13.6%. The Health Care Select Sector SPDR Fund ( XLV ) climbed 1.25% with LLY stock a large holding.


Top five Chinese stocks to watch now


Tesla shares

Shares plunged 16% last week to 223.07 after record deliveries from Tesla fell short of third-quarter views on concerns about China’s 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. The shares are approaching the lowest level in May of 206.84.

Tesla China delivered a record 83,135 vehicles in September, according to industry data. On Tuesday, investors will find out how many were sold in China versus exported.

Market rally analysis

Last week’s stock market action was almost textbook. The major indices, at the lowest of bear markets, recovered sharply after deeply oversold conditions on Monday-Tuesday. But the stock market rally attempt quickly hit resistance at the 21-day line – while government yields and the dollar rebounded. Selling intensified on Friday with the strong jobs report.

The market rally attempt is in effect until the major indices undermine their recent lows. But the Dow, S&P 500 and Nasdaq are not far from doing so.

A follow-up day could still come at any time to confirm the market rally. But investors should be cautious, especially if the indices execute an FTD below their 21-day lines. A follow-up before Thursday’s consumer price index also entails additional risk.

New Bear Market Leg?

Meanwhile, the risk is high that the bear market will break down.

The market rally came amid renewed hopes for slower interest rate increases from the Fed. Falling vacancies and Australia’s small rate hike strengthened this case. But Fed officials insist they are not pulling back, while the jobs report was too hot. Ultimately, the already high odds for a fourth straight rate hike of 75 basis points in November strengthened last week. Markets are close to locking in at least 50 basis points in December – with a small but growing chance of 75 basis points.

The earnings season can be a minefield. AMD and CVS followed several other high-profile warnings, with earnings season about to start. Markets still haven’t fully priced in the bad news: AMD shares and CVS fell more than 10% on Friday.

Key sectors

Energy stocks rose as crude oil prices rose. Many, however, seem extended.

Rising oil prices could be bad news for the broader market. Higher gas prices complicate the Fed’s task of curbing inflation. Gas prices had already risen, 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 tech and medical product names that had flashed buy signals at various points last week were sold off. 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 do not lead the downside, but do not strengthen 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 last week’s highs, and is even stronger now with the market rally attempt fizzing.

If you bought any stocks recently—except for the energy sector and select medical drugs—you may have already had to cut them. Even if you only take pilot positions, don’t let your losses mount. If you have winnings, you may want to lock some of it away.

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 many stocks. So focus on stocks that are rallying. But also keep a broader list of 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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