Dow Jones futures rose modestly on Monday afternoon, along with S&P 500 futures and Nasdaq futures. Crude oil prices rebounded when OPEC+ unexpectedly agreed on a small production cut. Meanwhile, Russia said natural gas flows to Europe will remain shut until Western sanctions are lifted.
The stock market rally fell sharply again last week, breaking through key levels.
With the major indexes heading south and few stocks looking healthy, investors should hold a large cash position and wait for better conditions.
apple (AAPL) will be in the spotlight this week, with the Dow Jones tech giant set to unveil the iPhone 14 on September 7. Apple stock had rallied to the precipice over recent sessions along with the broader market.
Arista Networks (ANET) has a similar chart pattern to Apple’s, but ANET stock has some differences that could make it more attractive. However, the ANET share is absolutely not actionable.
Meanwhile, Enphase Energy (ENPH), Country house (LNTH) and Neurocrine Life Sciences (NBIX) is drifting lower in consolidations after strong breakouts. Are they set up or ready to burst?
The Lantheus share is on the IBD Leaderboard. The ENPH stock and Arista Networks are on the IBD Big Cap 20.
The video embedded in the article reviewed the market action in depth, while also analyzing Apple stock, Arista Networks and Enphase Energy.
Energy prices are rising
Crude oil futures rose more than 2%, from Monday’s highs. OPEC and key allies such as Russia agreed to cut production quotas by 100,000 barrels per day in October. A production cut had been on the table, but it was not expected. It is unclear whether actual production will fall much at all, because many cartel members did not meet existing quotas. Still, it sends a signal of OPEC+ concerns about prices and current crude oil supply and demand amid a weakened global economy.
Meanwhile, U.S. natural gas prices were roughly flat after rising more than 3% earlier. European natural gas prices rose after plummeting from stratospheric record highs last week. Russia’s state-owned Gazprom last week shut down the Nord Stream 1 pipeline to Europe, reportedly for just three days of maintenance. But the pipeline did not restore flows on Saturday. The Kremlin said Monday that natural gas flows will not return to normal until the West lifts sanctions over its Ukraine invasion. Europe has built up supplies for the winter.
Dow Jones Futures today
Dow Jones futures rose 0.3% relative to fair value. S&P 500 futures rose 0.3% and Nasdaq 100 futures rose 0.3%.
US stock markets will be closed Monday for the Labor Day holiday, but other exchanges around the world were open. Dow futures will trade normally, closing at 1 p.m. ET and reopens at 6 p.m. ET.
China is expanding a Covid lockdown in Chengdu, the capital of industrial Sichuan province and home to 21 million people. The coastal technology hub of Shenzhen, which underwent mass testing this weekend, now faces layered restrictions.
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 market rally is a rally in name only. It extended recent losses but finished slightly above Thursday’s intraday low.
The Dow Jones Industrial Average gave up 3% in last week’s trading. The S&P 500 index fell 3.3 percent. The Nasdaq composite retreated 4.2%. Small-cap Russell 2000 fell 4.7%
The 10-year Treasury yield rose 16 basis points to 3.19%, a fifth straight weekly gain despite a decline on Friday from two-month highs.
US crude oil futures fell 4.9% to $86.87 a barrel last week.
Natural gas futures fell 5.2%, almost all of it on Friday.
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 6.4% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) gave up 3.5%. The iShares Expanded Tech-Software Sector ETF ( IGV ) retreated 4.4%, with many high-value software names not in IGV crashing last week. The VanEck Vectors Semiconductor ETF ( SMH ) plunged 6.7%.
The SPDR S&P Metals & Mining ETF ( XME ) plunged 8.4% last week, with steel stocks melting down after some flashing buy signals last week. The Global X US Infrastructure Development ETF (PAVE) fell back 4.6%. The US Global Jets ETF (JETS) lost nearly 4%. The SPDR S&P Homebuilders ETF ( XHB ) fell 3.3%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) retreated 3.4%, but after three weekly gains. The Health Care Select Sector SPDR Fund ( XLV ) fell 1.8%.
As a result of more speculative stock stocks, the ARK Innovation ETF ( ARKK ) fell 5.25% last week and the ARK Genomics ETF ( ARKG ) fell 5.1%.
Top five Chinese stocks to watch now
Apple Stock vs. ANET share
Apple shares fell 4.8% to 155.81 last week, falling below the 200-day mark and eventually the 50-day mark. AAPL stock still has a buy point at 176.25, but the handle is looking less and less appealing.
The relative strength line remains near highs. It shows that the Apple share largely falls in line with the S&P 500.
Apple revenue fell in the most recent quarter, and analysts saw single-digit EPS growth in fiscal 2022 and 2023.
ANET shares fell 4.7% to 117.30, also breaching its 200-day line, with Friday’s bounce fizzing. Shares did not fall all the way to the 50-day line during the week, although they did test the 10-week line. Arista stock has a buy point at 132.97 in a double bottom base.
Meanwhile, Arista’s earnings and sales growth have accelerated over the past three quarters, with EPS up 59% and revenue up 49% in Q2. Analysts see 40% EPS growth in 2022 and 13% in 2023.
Arista’s earnings may be seen as more vulnerable than Apple’s. A big cut in corporate IT spending could hit network stocks, while demand for the Apple iPhone and services appears more even.
Other stocks to watch
ENPH shares fell 3.3% last week to 279.07, but have been trading relatively tight and holding support around the 21-day moving average. The solar energy leader is trading relatively tight, and may have a flat base on a weekly chart after another week. Enphase stock could also continue to slide — or move sideways — to test the rapidly rising 50-day and 10-week lines. That could offer a buying opportunity, provided ENPH stock bounces from there.
NBIX shares fell 1.8% last week to 103.01, closing around its 21-day line. On Friday morning, Neurocrine bounced off that level and was close to a short trendline entry, but turned lower as the market turned. NBIX stock is not far from its 50-day line, which currently roughly coincides with the previous buy point of 100.10. Biotechnology needs another couple of weeks to form a proper base.
LNTH stock fell 3.7% last week to 78.48, closing slightly below its 21-day line, according to MarketSmith analysis. The 21-day or rapidly rising 50-day could offer a new entry in Lantheus, which cleared an earlier base in August, but in some wild action.
The Fed is planning an emergency landing for the US economy
Market rally analysis
The stock market rally is a rally in name only. Ever since the S&P 500 stopped just below its 200-day moving average on August 16, the major indexes have been in retreat. Fed Chairman Jerome Powell’s August 26 Jackson Hole speech, which signaled a more aggressive, dour Fed, triggered a sharper sell-off.
In the past week, all the key indexes fell below their 50-day moving averages. They rejected Thursday’s lows during the day, with the Nasdaq composite just shy of its late-July lows.
On Friday morning, indexes rebounded on the August jobs report, which showed robust hiring but also a long-awaited jump in the labor force. But after the S&P 500 and Russell 2000 came up to their 50-day lines, the indexes staged an ugly reversal.
The 50-day moving average now acts as a ceiling relative to support. Getting above that level is key, but only a first test. The 21-day line is another key level, roughly coinciding with steep declines in the Nasdaq and S&P 500. But the real key would be breaking above the 200-day moving average.
On the flip side, the Nasdaq undercutting Thursday’s lows will likely mean the official end of the much-faltering market rally.
Many leading stocks have suffered a lot in the past week. Although some stocks such as ENPH and NBIX are holding up relatively well, they are not making progress.
Potential leaders from Apple and ANET do not fall much more than the broader market. It is an example of why investors want to buy stocks in the middle of a market uptrend.
Energy stocks are in their own world of oil and gas prices, but are subject to wide swings in prices, sometimes at the whim of autocratic leaders. The OPEC+ production cut and Russia’s decision to explicitly suspend natural gas transport until sanctions are lifted could give energy stocks a tailwind on Tuesday.
Time the market with IBD’s ETF market strategy
What to do now
Investors should have minimal exposure and patiently prepare for a better market environment. Until the major indexes regain their 50-day or 21-day moving averages, investors should probably not consider new purchases. The only exception may be oil and gas names, but investors should tread carefully even there.
The rapid rise and reversal from the 50-day line may have provided some shorting opportunities. Another attempt at the 50-day could do it again in the coming days.
So build up your long and short watch lists, which will probably need a lot of changes from a week ago. On the upside, focus on stocks with strong relative strength, even if they don’t have ideal patterns.
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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