Dow Jones futures and S&P 500 futures rose modestly Thursday morning, but from highs overnight. Nasdaq futures were lower. Snowflake revenue and Apple iPhone demand are in focus.
The stock rose a bearish reversal on Wednesday after the CDC confirmed the first US case of the omicron Covid variant in California. The major indices opened by bouncing above or from key levels, only to break the moving averages on the downside. Downturns made easy progress after a promising start for market breadth.
Bottom line: The stock market is under increasing pressure. Investors should take a more defensive stance.
Megacap technology apple (AAPL), Microsoft (MSFT) and Google parent Alphabet (GOOGL) led Wednesday morning rally, but even they gave up winnings to close the fraction lower. Apple withdrew early Thursday on a report of weaker demand for the iPhone.
Chipmakers started strongly on Wednesday Ambarella (AMBA) skyrocketing on earnings. But several outbursts faltered with afternoon sales.
Meanwhile, ugly actions for software stocks continued. Salesforce.com (CRM) plunged on weak forecasts. Zscaler (ZS), the clear cyber security leader in recent weeks, turned lower despite strong results and guidance.
Following the closure, several software vendors announced revenue, including Snowflake (SNOW), CrowdStrike (CRWD), Octa (OCT), Synopsys (SNPS) and Veeva Systems (VEEV). Chipmaker Semtech (SMTC) and teen-focused discounts Five under (FEM) also reported.
The SNOW stock jumped overnight after Snowflake reported earnings and guidance. The CRWD share and Okta rose slightly in pre-market trading due to strong earnings and guiding. But all three software stocks had fallen in recent days and weeks. The Veeva share retreated after results, after selling out in recent weeks.
The SNPS share was little changed after strong earnings and guiding, but in-line earnings. Synopsys shares fell 1.4% in Wednesday’s session, just below a buy point. FIVE shares rose back overnight on earnings, but after falling below the 50-day and 200-day lines on Wednesday. The SMTC share fell early Thursday after topping the impressions slightly and leading in line.
Microsoft and Google stocks are on the IBD Leaderboard. Microsoft Stock, Google and Synopsys are on IBD Long Term Managers. Google, Microsoft and the ZS stock are at IBD 50. The UCTT stock was Wednesday’s IBD stock.
Dow Jones Futures today
Dow Jones futures rose 0.6% vs. fair value and S&P 500 futures rose 0.3%, both significantly reducing gains, but trying to increase revs. Dow fight Boeing (BA) rallied after Chinese regulators moved toward allowing 737 Max flights again. Nasdaq 100 futures declined 0.1%. Apple is a feature for all three indices.
Crude oil futures deleted overnight gains, following Wednesday’s negative reversal. Reports indicated that OPEC + will stick to its plans to gradually increase crude oil production, and not pause due to the omicron variant.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze powerful stocks in the stock market rally on IBD Live
Omicron Variant Case in USA
While no surprise, the omicron Covid variant has reached the United States. The CDC announced that an omicron case in California has been found. The patient returned on 22 November from South Africa, where the omicron variant was first discovered, and tested positive on 29 November. The World Health Organization said on Wednesday that omicron has been reported in at least 23 countries.
The California Omicron patient had been vaccinated but had not yet received a booster syringe, the CDC said. The patient so far has mild symptoms.
It could take another two weeks or so before the health authorities have a grip on how contagious the omicron variant is, said White House chief medical adviser Dr. Anthony Fauci. Coronavirus vaccine manufacturers can also, by then, provide an indication of how effective their treatments are in stopping omicron infections and limiting hospitalizations.
Modern (MRNA) fell 12% on Wednesday, below the 50-day limit. The BNTX share gave up 4.9 percent. BioNTech (BNTX) vaccine partner Pfizer (PFE) rose 1.8%.
New York Fed President John Williams said on Wednesday that the omicron variant could slow economic growth while increasing inflationary pressures. This quasi-stagflation warning was repeated by Fed Chairman Jerome Powell’s comments to Congress on Tuesday. Powell also said he was open to talking about speeding up the bond cut at the Fed meeting on May 14-15. December.
The White House issued new Covid rules in the wake of the omicron variant. It is to order stricter testing for international travelers, but not to impose quarantines or testing on arrival. It extends the mask mandate for transit to 18 March. It also said that private insurance companies must reimburse people for Covid tests at home.
Coronavirus cases worldwide reached 263.92 million. Covid-19 deaths topped 5.24 million.
Coronavirus cases in the United States have reached 49.57 million, with deaths above 805,000.
Stock market rally
The stock price rise started with strong, broad gains, but turned to close at low sessions when fears of omicron variants returned.
The Dow Jones Industrial Average fell 1.3% in Wednesday’s trading session. The S&P 500 index retreated 1.1%. Nasdaq composites fell 1.8 percent. Small-cap Russell 2000 cut 2.3%.
Apple shares reached record highs, but reversed for a fall of 0.3%. It is still extended from an eruption on November 17. Early on Thursday, the AAPL share fell almost 3% despite the broad decline before the market. Wedbush raised the price target to 200 from 185, citing bullish demand. But Apple has told suppliers that demand for the iPhone has declined as the holidays approach, Bloomberg reported late Wednesday. Apple iPhone chip makers also went lower.
Microsoft shares fell 0.15% on Wednesday Google shares fell 0.6% after taking back the 50-day line and coming straight up to an early entry. MSFT and GOOGL went higher before Thursday’s opening.
Crude oil futures rose more than 4% intraday, but closed down 0.9% to $ 65.57 a barrel. The 10-year government interest rate reached almost 1.5% intraday, but closed down 1 basis point to 1.43%.
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Among the best ETFs, Innovator IBD 50 ETF (FFTY) fell 3.8%, while Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.2%.
iShares Expanded Tech-Software Sector ETF (IGV) fell 4.3%. The Microsoft stock is a large IGV stock, but so is the CRM stock, which plunged 12%. CRWD shares and Zscaler are also in IGV. VanEck Vectors Semiconductor ETF (SMH) fell 0.35%, with the MU stock a remarkable holding. SNPS stock is in both IGV and SMH.
The SPDR S&P Metals & Mining ETF (XME) fell 2.2% and the Global X US Infrastructure Development ETF (PAVE) gave up 1.3%. The US Global Jets ETF (JETS) fell 4.5%, reversing lower to reach a new 52-week low as travel stocks fell on US omicron news. SPDR S&P Homebuilders ETF (XHB) fell 0.2%, with actual builders doing well. Energy Select SPDR ETF (XLE) and Financial Select SPDR ETF (XLF) both retreated 1.1%.
The ARK Innovation ETF (ARKK) reflects more speculative history stocks, plunging 6.7% to a low of six months and a 52-week closing level as software stocks came under pressure. ARK Genomics ETF (ARKG) lost 4.6% and is back at 52 weeks’ lowest level.
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Market Rally Analysis
The rise in shares, already under pressure, opened strongly and closed weakly, a classic move in weak markets. The Nasdaq moved above its 21-day intraday line, but reversed lower to just below its 50-day line. The S&P 500 index briefly regained its 21-day line, but then slipped below the 50-day line. The Dow Jones, which rose from just above its 200-day line, returned to approaching below long-term support levels for the first time since July 2020.
Russell 2000 reached its 200-day line and then fell to a three-month low. The small-cap index is a good proxy for market width. Once again, losers beat winners, by 3-to-1 on the Nasdaq, after a promising start.
It is a sign of how shaky the market is that official confirmation of an American omicron patient with mild symptoms triggers a bearish reversal.
While it’s not entirely accurate to say that Apple stock is the only leader that holds up, it feels that way. Actionable stocks are scarce and prone to counterfeiting.
Financial and energy stocks have not been destroyed, but they have been hit hard by falls, whiplash in government interest rates and crude oil prices. They need time to repair themselves.
The entire software sector looks damaged, with more and more managers breaking through key levels. Salesforce weighed heavily on business software, but the ZS stock reversal was even more discouraging. If the best software stock right now shows such a bearish action despite seemingly good results and guidance, what are the odds that other software names will move on?
Yes, the Microsoft stock is still holding up well, but it may be the exception that proves the rule. Investors no doubt treat MSFT stocks more like a cloud computing game than a software maker.
The CBOE Volatility Index, or VIX, jumped again on Wednesday, topping Friday’s high and setting a new nine-month high. Large peaks and high measurements in the market’s fear meter can signal at least a short-term bottom. But it does not have to happen right away, and it does not have to last, as Monday’s one-day market upswing showed.
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What to do now
The stock market rise was already under pressure after Tuesday’s loss. With Wednesday’s strong downward turn, the trend is close to breaking point. Whether it’s the big indices, leading stocks – apart from a few holdouts like Apple – or the general breadth, the market upturn does not look healthy.
It’s a time to be defensive, preserve capital and reduce risk. Ultimately, it is difficult to bet on the market or specific sectors or stocks with so much uncertainty about the omicron Covid variant. And do not forget that the troubles of the market rally went before omicron.
Yes, VIX suggests that the market upturn may bounce soon, but when and for how long is not clear. If you felt you should have left some positions on Wednesday, you can use a bounce to reduce your exposure.
Do not try to guess the bottom. Again, if the market rally really strengthens and goes on a meaningful race, there will be opportunities to take advantage of it.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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