Dow Jones Futures: Stocks Run as Microsoft Roars, But This Risk Is Growing; Adobe Celebrates ‘AI Era’

Dow Jones futures rose slightly early Friday, along with S&P 500 futures and Nasdaq futures. Adobe (ADBE) rose overnight on strong results and earnings guidance.

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After showing resilience after Wednesday’s hawkish outlook for a Fed rate hike, the stock market rebounded on Thursday, with strong, broad-based gains. The Nasdaq and S&P 500 hit new 52-week highs while the Dow Jones finally topped its 2023 highs. Microsoft (MSFT) was a big driver for the major indexes, with apple (AAPL) and Meta platforms (META) also contributes. But the market breadth was strong.

Cava (CAVA) surged 99% in its debut Thursday, after CAVA stock priced its IPO at 22 a share, above the expected range. CAVA stock opened at 42 and closed at 43.78. The Mediterranean restaurant is not yet profitable, but it is growing rapidly.

Snowflake (SNOW), Monday.com (MNDY) and Smith and Nephew (SNN) flashed buy signals. But the risk of a decline in the market increases the risk of new purchases in the short term.

The Nasdaq and Nasdaq 100 are looking increasingly extended, and the S&P 500 is also starting to look stretched.

The META share is on the IBD Leaderboard. MSFT stock is on the IBD Long-Term Leaders. MNDY stock is on the IBD 50.

Dow Jones Futures today

Dow Jones futures rose 0.1% relative to fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose 0.2%. Adobe stock is an S&P 500 and Nasdaq 100 component.

Crude oil futures fell slightly.

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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Adobe revenue

Adobe earnings beat fiscal Q2 showings with revenue higher than previous forecasts, with CEO Shantanu Narayen touting a “new era of generative AI” in the release. The software giant guided EPS forecasts slightly higher and revenue in line.

ADBE shares rose 3% early Friday. Shares rose 2.4% to 490.91 in Thursday’s regular session, hitting a 16-month high. Adobe stock has soared in recent weeks as it pushes artificial intelligence efforts and alliances.

Stock market rally

The share rise started mixed, but increased steadily for strong gains.

The Dow Jones Industrial Average jumped 1.3% in Thursday’s trading, hitting its best levels since December’s 52-week high. The S&P 500 rose 1.2% and the Nasdaq composite 1.15%, both at their best levels in more than a year. The small-cap Russell 2000 climbed 0.8%.

Microsoft rose 3.2% to 348.10, setting a record closing high. It’s up 6.5% so far this week. Apple shares rose 1.1% to record levels. Meta Platforms rose 3.1%, a 52-week high. Microsoft stock and Apple are on the Dow Jones, S&P 500 and Nasdaq composite, with META stock on the S&P 500 and Nasdaq.

US crude oil prices rose 3.4% to $70.62 a barrel.

The 10-year government yield fell 7 basis points to 3.73%.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) rose 2%, with the MSFT stock a key component. VanEck Vectors Semiconductor ETF ( SMH ) retreated 0.75%.

ARK Innovation ETF ( ARKK ), reflecting more speculative history stocks, rose 1.1% and ARK Genomics ETF ( ARKG ) rose 2.2%.

The SPDR S&P Metals & Mining ETF (XME) rose 1.6% and the Global X US Infrastructure Development ETF (PAVE) rose 1.2%. The US Global Jets ETF (JETS) rose 0.9%. The SPDR S&P Homebuilders ETF (XHB) rose 1.6%. The Energy Select SPDR ETF (XLE) rose 1.1% and the Health Care Select Sector SPDR Fund (XLV) rose 1.55%.

The Financial Select SPDR ETF ( XLF ) rose 1.3%. The SPDR S&P Regional Banking ETF (KRE) rose 1.9%.

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Shares in buying areas

SNOW stock jumped 5.5% to 190.98, clearing key 185 resistance in a consolidation back to late August. The volume was above average. Snowflake shares plunged on May 25 after the data analytics software maker cut its full-year guidance, but shares immediately began to rebound. It’s not normal, but it has happened to a large number of growth stocks in recent weeks.

MNDY was down 0.1% at 182.77, but rebounded from a morning low of 168.88, just above the 21-day line. Monday.com went up in revenue on May 15, offering a first early entry. Another entry came a week later when MNDY stock moved past an incomplete handle. Shares moved above the official consolidation buy point of 171.89 on May 31, but were sharply extended from the moving average. The recent break in June has allowed the 21-day line to catch up somewhat. Investors can buy Monday.com shares from the 21-day line bounce or use 184.60 as a high hand entry.

SNN shares rose 1.4% to 32, clearing a downtrend line, making for an early entry. On Wednesday, Smith & Nephew stock jumped 5.55%, breaching the 50-day mark. It is one of several medical product companies showing strength this week. The SNN share has an official buy point of 33.09 from a flat base.

Market rally analysis

The stock rally could easily be sold off after the Federal Reserve’s prospect of interest rate hikes, either on Wednesday or in a day two reaction on Thursday. Instead, stocks held up relatively well on Wednesday and then rose on Thursday.

Apple, Meta and Microsoft shares helped fuel the major indexes.

The Dow Jones led the way, while the Nasdaq and S&P 500 climbed for a sixth straight session.

Incumbents led decliners by 3-to-1 on the NYSE and more than 2-to-1 on the Nasdaq.

Invesco S&P 500 Equal Weight ETF ( RSP ) rose 1.2% to 148.95.

The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) climbed 1.2%. It is now 7.4% above the 50-day mark.

The Nasdaq has risen strongly since the end of April, especially in the last month. It is now 10.1% above its 50-day line, with the Nasdaq 100 11.6% above that level. The S&P 500 is 6% above its 50-day, which is up for that benchmark.

It increases the chances of a withdrawal in the short term, and the risk that there would be a major landslide. Of course, it doesn’t have to happen right away, as the last few days have shown.

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What to do now

Once again, the market recovery is showing strength, but investors need patience.

If you’ve owned some big winners for a long time, the prospect of a pullback from the Nasdaq to, say, the 21-day line probably wouldn’t be alarming. There is also the possibility of a sharper correction, or that your shares fall much further. If you are heavily exposed, you can choose to take partial profits to lock in some gains in very extended names.

A withdrawal would be a bigger deal for new positions, especially technicians.

SNOW stock, for example, would likely struggle to hold Thursday’s breakout if the Nasdaq were to fall 4%-5% over the next few sessions. MNDY stock could easily fall below the official buy point, although previous entries may be safe.

You can choose to gradually take on new positions here, perhaps stress areas outside the technology area. But there is a strong case for waiting for a pullback in the market to create safer buying opportunities in new stocks or adding to existing holdings.

Right now, there are not many shares in buying opportunities. Chip, software and megacap names like Apple, Microsoft and Meta are expanding strongly. Even newer leaders in the travel and industrial sectors look expanded after racing from the bottom of the bases. All this is yet another sign that the market may need a breather.

A pullback or pause in the market should create a number of new buying opportunities.

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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