Dow Jones Futures: Market Rally Rebounds from Key Levels; Four income winners

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Stocks rallied Thursday morning on hawkish Fed statements, extending Wednesday’s losses. But the major indexes retreated from some key levels to close slightly lower.

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Treasury yields rose while crude oil prices fell.

apple (AAPL), Microsoft (MSFT) and Google parent Alphabet ( GOOGL ), the only three trillion-dollar stocks on U.S. exchanges, rose after testing support at its 50-day moving average. Meanwhile, Tesla ( TSLA ) pulled back toward its bear market lows.

Investors should be cautious in the current market, add exposure slowly and be ready to take profits and cut losses quickly.

Earnings

Materials used (AMAT), Palo Alto Networks (PANW), Clearfield (CLFD) and Ross Stores (ROST) topped all EPS and sales views late Thursday, with generally strong guidance as well.

AMAT stock rose modestly overnight, poised to move back above its 200-day line. PANW shares bounced, signaling a move above the 50-day. CLFD stock rose in extended trading, looking to bounce above the 50-day line as it tries to build the right side of a double-bottom base. ROST stock moved towards 2022 highs after closing within range of a bottom base.

JD.com (JD) and Atkore (ATKR) is in print early Friday.

JD shares jumped 7.5% on Thursday, all the way up to the 200-day line, afterwards Ali Baba (BABA) earnings early Thursday. ATKR stock fell 3.5% on Thursday but was comfortably above its 200-day line as it operates on the right side of a deep cup base.

Dow Jones Futures today

Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures were flat. Nasdaq 100 futures rose 0.1%, with AMAT and PANW tech stocks lifting.

Crude oil futures rose 1 percent.

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

Stocks fell solidly at the open as St. Louis Fed President James Bullard and Kansas City Fed President Esther George made hawkish statements. The major indexes rebounded to close flat to slightly lower.

The Dow Jones Industrial Average was just below break-even in Thursday’s trading. The S&P 500 index fell 0.3 percent. The Nasdaq composite fell 0.35 percent. The small-cap Russell 2000 gave up 0.9%.

The Apple share rose 1.3 percent. Microsoft shares returned two cents, Google shares fell 0.5%. All tested their 50-day lines intraday. All are below their 200-day lines with no clear buy points. Tesla shares fell 2%, approaching bear market lows on Nov. 9.

The US crude oil price fell 4.6% to $81.64 a barrel. In addition to hawkish Fed comments, blame Beijing’s renewed emphasis on “zero-Covid” policies. China’s Cabinet has reportedly warned cities to avoid “irresponsible loosening” of Covid-19 measures, just a week after the high-level body backed easing rules. On Wednesday, Peking University locked down over a single issue. Covid infections have increased in the last two weeks in China.

Hawkish Fed raises Treasury yields

The 10-year government yield rose 8 basis points to 3.77%.

The St. Louis Fed’s Bullard said the Fed Funds rate, currently at 3.75%-4%, may have to go as high as 7%, far more than consensus for around 5%. The Kansas City Fed’s George said a recession may be needed to bring down inflation.

One reason why politicians sound hawkish is to push up market interest rates and dampen the rise in the stock market. If financial conditions ease significantly due to the Fed’s pivot hopes, inflation could remain higher for longer, forcing the Fed to further tighten official interest rates.

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ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.65%, even with MSFT stock as a key component. The PANW share is also an IGV holding. The VanEck Vectors Semiconductor ETF ( SMH ) fell 0.5%, with AMAT stock a notable SMH holding.

The SPDR S&P Metals & Mining ETF ( XME ) fell 2.1%. The SPDR S&P Homebuilders ETF ( XHB ) retreated 2%. The Energy Select SPDR ETF (XLE) was down 0.5% and the Health Care Select Sector SPDR Fund (XLV) was down 0.2%.

Mirroring more speculative stock stocks, the ARK Innovation ETF ( ARKK ) returned 2.8% and the ARK Genomics ETF ( ARKG ) 3.2%. TSLA stock is a large holding across Ark Invest’s ETFs.

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Stock market rally analysis

The stock rally tested some key levels at Thursday’s open. The Nasdaq found support just above its 50-day moving average. The S&P 500 came down to its short-term highs in October. The Russell 2000 rebounded from near its 21-day line. The S&P 400 MidCap held its 200-day line.

The market was no doubt due for a pullback after a strong run and the S&P 500 is approaching its 200-day line. At the same time, the market rally found support on Thursday in important areas. So the last couple of days were normal and somewhat constructive for the major indices – assuming they can hold Thursday’s lows and eventually move higher.

However, the market’s pullback from Tuesday’s intraday high to Thursday morning’s low hit a number of stocks that broke out or flashed early entries over the past couple of days. Several tested these entries or simply failed. Some rebound while others can. In certain cases, the previous purchase points are still valid, while others may need to enter new handles or other entries. Still others may struggle for a longer period.

A wide variety of stocks and sectors are showing interesting action.

In all these cases, a healthy market rally will be key.

Apple shares, Microsoft and Google are not market leaders and may not be for some time. But if they can avoid backlog, it will be a big help.

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What to do now

The stock market recovery showed encouraging action on Thursday. The general trend has been higher in recent weeks. But it’s been a bumpy road for investors.

Anyone who bought shares after the October 21 follow-up day was probably underwater by early November. While the indices rose on November 10 on the tame CPI report, the Nasdaq, S&P 500 and Russell 2000 have been flat to down since then.

The share recovery is still choppy, with sector rotation and large intraday fluctuations complicating matters. Buying opportunities have often been the moment when the market pulls the curtain from investors.

So keep the exposure light. Add exposure gradually – and be ready to cut exposure due to market conditions or individual stock selling rules.

Keep your watchlist updated so you can see new leads.

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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