Dow Jones Futures: Market Rally will not do this; BBBY stock crashes in Reversion Til Meme

Dow Jones futures were down overnight, along with S&P 500 futures and Nasdaq futures. Materials used ( AMAT ) reported after the close, while BBBY stock cratered overnight. The stock rally is in a decline near key resistance, but not really pulling back, with the major indexes edging higher on Thursday.

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It is a sign of strength, but a modest retreat would be constructive. Investors should be cautious about adding significant exposure in the near future.

BJ’s Wholesale (BJ) and Canadian Solar Energy (CSIQ) exited from bases on strong earnings, as both come from areas of market strength. Exxon Mobil (XOM) issued a buy signal as oil and gas stocks continue to lead with rising energy prices. Vertex Pharmaceuticals (VRTX) pulls back, but possibly sets up another buying opportunity.

Meanwhile, Bed Bath & Beyond (BBBY) suffered a “return to meme,” plunging the following Thursday GameStop (GME) Chairman Ryan Cohen, a major BBBY stock investor, announced plans to cash out. BBBY stock continued to crash overnight as Cohen completed his swift exit.

AMAT revenue

Applied Materials earnings were better than expected in the fiscal 3rd quarter, with the chip equipment giant also guiding higher. AMAT shares climbed modestly in overnight trading, near a two-month high. Shares of the chip equipment giant rose 2.1% to 108.27 on Wednesday. But Applied Materials stock remains significantly below its 200-day moving average.

AMAT revenue could be good news for the rival KLA Corp. (KLAC). KLAC stock was quiet in extended trading after rising 1.85% to 382.02 on Thursday. It is working on a 399.06 cup-with-handle buy point and is on track to break a trend line at that handle, which would offer an early entry.

Vertex stock is on the IBD Leaderboard and IBD Big Cap 20. XOM stock is on SwingTrader.

Dow Jones Futures today

Dow Jones futures tipped lower relative to fair value. S&P 500 futures fell 0.1 percent. Nasdaq 100 futures fell, even with a slight increase from AMAT stock.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

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Stock market rally

The stock rally traded in a narrow range for most of Thursday’s session.

The Dow Jones Industrial Average rose less than 0.1% in Thursday’s trading. The S&P 500 index and the Nasdaq composite rose 0.2%. The small-cap Russell 2000 rose 0.7%.

The US crude oil price rose 2.7 percent to $90.50 a barrel. Gasoline futures rose 3.1 percent. Natural gas futures fell 0.6%, but are right at 14-year highs.

The 10-year government yield fell 1 basis point to 2.88%.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.4%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) lost a fraction. The VanEck Vectors Semiconductor ETF ( SMH ) rose 1.4%, with AMAT stock a notable component.

The SPDR S&P Metals & Mining ETF (XME) rose 2.4% and the Global X US Infrastructure Development ETF (PAVE) rose 0.7%. The US Global Jets ETF (JETS) fell 0.3 percent. The SPDR S&P Homebuilders ETF (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) gained 2.7%, with XOM shares a massive holding. The Financial Select SPDR ETF ( XLF ) rose 0.1%. The Health Care Select Sector SPDR Fund ( XLV ) was down 0.4%.

As a result of more speculative stock stocks, the ARK Innovation ETF (ARKK) fell 1.1% and the ARK Genomics ETF (ARKG) fell 1.2%.

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Stocks flashing buy signals

BJ’s stock rose 7.2% to 74.09, clearing a buy point at 71.10 but off a high of 77.47 just after the open. Investors can still buy the gap up or use an intraday chart to see if BJ’s stock can top the 75.50 area, around most of Thursday’s trading. BJ’s Wholesale early Thursday reported its third straight quarter of accelerating revenue growth and a second quarter of faster revenue increases. The stock member chain also guided higher.

Bigger rival Costco Wholesale ( COST ) rose 0.8% to 560.96, comfortably in a cup-with-handle buy zone, according to MarketSmith analysis.

CSIQ shares rose 15% to 45.19, holding on to most of their intraday gains. Investors can buy Canadian Solar now or wait to see if it consolidates or pulls back modestly first.

Canadian Solar reported EPS growth of 494%, with revenue up 62%. The Energy-Solar group is ranked #1 out of 197, with US-based Enphase Energy (ENPH) leads the way.

Exxon shares rose 2.4% to 94.38, bouncing off its 50-day line and breaking a downtrend from the start of the consolidation in early June. The official buy point is 105.67. As a diversified energy giant with heavy exposure to crude oil, natural gas and refining, Exxon Mobil is well positioned.

Vertex shares fell 1.65% to 294.29, pulling back for a third straight session on low, declining volume. But stocks found support at the 21-day moving average. Investors can buy VRTX shares now or wait for some strength.

BBBY stock crash after pump, dump

BBBY stock fell 19.6% to 18.55 on Thursday, following a huge rally in recent weeks. Late Wednesday, Ryan Cohen, chairman of original meme stock GameStop, announced plans to sell his Bed Bath & Beyond holdings. Late Thursday, BBBY plunged 44%, as Cohen revealed he was done selling his stake.

Furthermore, Bed Bath & Beyond, which in the real world is a money-losing home appliance company with declining sales, has reportedly hired a bankruptcy law firm to help it deal with an unmanageable debt load, Bloomberg reported Thursday evening, citing a source.

BBBY, up 132% for the week at Wednesday’s high, is now down significantly for the week including the after-hours dive.

As late as Monday night, Cohen disclosed large out-of-the-money BBBY stock options, which contributed to strong gains Tuesday-Wednesday.

But while GameStop’s Cohen offered a pump-and-dump catalyst, Bed Bath & Beyond stock is following a familiar “reversion to the meme” script. Meme stocks often have a massive gain that gets wide media attention, followed by another big intraday gain that often fades or closes lower, with rapid declines after that.

While BBBY stock had rallied earlier in August, Tuesday’s 79% intraday gain – 29% at the close – received record volume attention. On Wednesday, shares surged 45% intraday to a five-month high, but paled in comparison to a 12% near-recession gain.

As for other meme stocks, GME stock fell 6.4% after falling 4% on Wednesday. AMC Entertainment (AMC) fell 9.7%, below its 200-day line. AMC stock plunged 14% on Wednesday.

GME shares and AMC fell overnight.

Market Rally Analysis

What if the market rally declared a pullback, but the pullback didn’t show? The major indexes have pulled back a bit since the S&P 500 nearly hit its 200-day line on Tuesday, but none of the major indexes have even touched the 10-day moving average.

The Dow Jones continues to hold its 200-day moving average, with the S&P 500 and Russell 2000 just below this key level.

The resilience of the market rally after a strong stretch is impressive. But more of a pullback would provide a chance for leading stocks to form handles or pull back to the 21-day lines. The major indexes themselves are only 3% or so above the 21-day mark.

Individual stocks and sectors will vary. Energy stocks are coming in with rising prices, with Exxon Mobil and several other flashing buy signals in recent days. Solar names look strong while heavy structures, steel and some transport come into play.

Several chip names are coming on strong, along with some retailers like BJ’s Wholesale.

Biotech companies like VRTX shares are pulling back, which could offer some buying opportunities of their own.

The market rise can stop quietly for several days and then rise higher, but it can also go the other way. The Nasdaq traded close at the end of last year, again at the end of March/early April, and at the end of May/early June. In all cases, the tame action ended with sharp sales.

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What to do now

That’s why investors shouldn’t get too aggressive right now. There are some buying opportunities and investors should consider them, but do not add exposure significantly with the market direction unclear in the very short term.

You can still consider taking some profits along the way, with stocks still prone to giving up a lot of recent gains amid sector rotation. It’s also a way to manage your overall portfolio exposure.

The pullback in the market and various sector movements are creating new setups, so don’t let go of your watchlists.

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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