Dow Jones futures were steady overnight, along with S&P 500 futures and Nasdaq futures, with the August jobs report on tap. The stock market rally sold off again during the day on Thursday, but rebounded to a mix.
Despite the close, there was more damage among key sectors and stocks amid a flurry of negative news.
A US ban on sales to China of certain advanced chips from Nvidia (NVDA) and AMD (AMD) struck at the semiconductor sector. And several big sales by struggling software makers hit the other big tech space. A lockdown in China of 21 million people due to Covid cases also weighed on stocks and led to a sell-off in crude oil, copper and base metals. Meanwhile, Treasury yields and the US dollar rose on strong labor market data heading into the August jobs report.
Several leading shares — such as e.g Celsius Holdings (CELH) and Enphase Energy (ENPH) — are under pressure, although they haven’t cracked yet. Some stocks that have been rallying in recent weeks have broken through key support, such as apple (AAPL), Arista Networks (ANET) and to some extent, Tesla (TSLA).
Investors should have minimal exposure in the current market environment.
Economists expect Friday’s August jobs report to show that non-agricultural payrolls rose by a solid 293,000 after July’s warm 528,000. Economists see unemployment remaining at a half-century low of 3.5%.
Labor force participation will be central. A sustained upswing in the labor force would be an almost magical elixir for the economy, easing pressure on the Federal Reserve to be so aggressive in raising interest rates.
But participation has had a lower trend in recent months, and has not caused any slack in the labor market.
The jobs report follows data this week showing that the initial number of unemployed has fallen to a two-month low, and that vacancies in July jump well above expectations.
Why you can’t trust Friday’s jobs report
Dow Jones Futures today
Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures fell 0.1% and Nasdaq 100 futures rose.
Late Thursday, Broadcom (AVGO) and Lululemon Athletica (LULU) reported strong earnings and raised guidance. AVGO stock and Lululemon jumped overnight. None of them are close to being actionable, but it is positive action for the market.
The jobs report will be due at 8:30 a.m. ET, which is sure to spur big moves in Dow futures, Treasury yields and more.
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 started lower on Thursday and continued to weaken before rebounding late in the session to close modestly mixed.
The Dow Jones Industrial Average rose 0.5% in Thursday’s trading. The S&P 500 index rose 0.3 percent. The Nasdaq composite fell 0.3 percent. The small-cap Russell 2000 fell 1.1%.
US crude oil prices fell 3.3% to $86.61 a barrel.
The 10-year Treasury yield rose 13 basis points to 3.265%, the highest since late June. The benchmark rate, which has risen from just below 2.53% on 2 August, is starting to approach an 11-year high of 3.48% on 14 June.
The VanEck Vectors Semiconductor ETF ( SMH ) yielded 2.2%. Nvidia and AMD stocks are big SMH holdings. NVDA shares fell 7.7%, hitting a two-year low. AMD, which is less vulnerable to curbs in China than Nvidia, fell 3%, still above its June lows.
The SPDR S&P Metals & Mining ETF ( XME ) fell 3.8%. US Global Jets (JETS) was down 0.6%. The Energy Select SPDR ETF (XLE) lost 2.5%, and the Financial Select SPDR ETF (XLF) gained 0.3%. The Health Care Select Sector SPDR Fund ( XLV ) rose 1.6%.
Reflecting stocks with more speculative stories, ARK Innovation ETF ( ARKK ) fell 0.4% and ARK Genomics ( ARKG ) rose 0.65%. Tesla stock is a large holding across Ark Invest’s ETFs.
Top five Chinese stocks to watch now
Market rally analysis
Well, the rise in the stock market was undoubtedly the reason for a bounce. Whether Thursday’s pullback from intraday lows to mixed has legs will likely depend on Friday’s jobs report.
During the day, the major indexes suffered more damage.
The Nasdaq and S&P 500 did not quite break their July 26 lows, which would have marked an end to the “higher low” trend and possibly triggered a shift to “market correction.” But they are well below their 50-day moving averages, along with the Dow Jones.
The small-cap Russell 2000 and S&P MidCap 400 gapped below their 50-day lines on Thursday.
It was encouraging to see the market bounce back on Thursday afternoon in the face of so much headwinds and headlines. But a market rally is measured in weeks, months or years, not two-hour intervals.
Steel stocks, which a week ago flashed buy signals, have melted down. Chip names that looked so strong last week have crashed. Oil stocks are struggling.
Meanwhile, bottom-fishing rally for the likes of Nvidia shares, Data dog (DDOG) and ARKK were terminated weeks ago.
Solar, natural gas and pollution control stocks are still holding up relatively well, although most of these names are not making progress and are beginning to slide. Have Enphase shares, Cheniere energy (LNG) and Celsius stage shakeouts on Thursday, or will they be the next to crumble?
Albemarle (ALB) pared recent gains as lithium plays sold off.
Many stocks that had rallied may need significant repair work even if the overall market quickly recovers. Apple shares and Tesla closed higher after undercutting their 50-day lines intraday. But both are looking up at their 200-day lines.
Vertex Pharmaceuticals (VRTX) shows positive action, while UnitedHealth (UNH) and Hundreds (CNC) is fighting for key support in old buying zones.
Time the market with IBD’s ETF market strategy
What to do now
This is not the time to buy stocks. If you have some stocks with solid gains that are holding up well, you can stick with them, although partial gains are not a bad idea.
Investors can disagree about when to sell a winning stock, but you have to draw a line in the sand somewhere.
This is not a good time to short. The ideal time was when the market hit resistance at the 200-day line a few weeks ago. Short-term rallies can be intense, but often short-lived. However, if the indices rise to the 50-day line and stop out, there may be new shorting opportunities, perhaps even in stocks such as Arista, Apple or Tesla.
Work on your watch lists, long and short. Even if you don’t intend to short, the exercise can help your overall market analysis and prevent you from being too bullish.
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.
YOU MAY ALSO LIKE:
Why this IBD tool simplifies the search for top stocks
Get the next big winning stock with MarketSmith
Do you want to make quick profits and avoid big losses? Try SwingTrader
Best growth stocks to buy and watch
IBD Digital: Unlock IBD’s Premium stock lists, tools and analysis today
Tesla vs. BYD: Which EV giant is the best buy?