Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures. The stock market rally pulled back on Wednesday, with the Nasdaq leading the decline. KB Home (KBH) reported late.
Meanwhile, Nvidia (NVDA) and Tesla ( TSLA ) pulled back after hitting higher on Tuesday. Advanced Micro Devices (AMD) and Google parent Alphabet (GOOGL) broke below a key level, as turbocharged artificial intelligence plays Palantir Technologies (PLTR) and AI stock fell.
Fed Chairman Jerome Powell reiterated on Wednesday that more rate hikes are likely, but did not really change the outlook from his comments after the Fed meeting a week earlier. At most, Powell provided another catalyst for the pullback in the market.
In hot tech and growth sectors, investors should keep an eye on the leaders to see which ones hold up best during the incipient downturn. Nvidia stock, despite Wednesday’s slide, looks a lot better right now than AMD stock.
But outside the megacap growth and AI areas, sales were muted. Investors may choose to make purchases in some non-tech fields. Chipotle Mexican Grill (CMG) flashed buy signals on Wednesday.
C3.ai (AI) will hold an analyst day on Thursday.
Tesla stock and Nvidia are on the IBD Leaderboard, with Chipotle on the Leaderboard watch list. The CMG share is on SwingTrader. TSLA stock is at the IBD Big Cap 20. Chipotle was Wednesday’s IBD Stock Of The Day.
The video in this article reviewed Wednesday’s market action, analyzed Chipotle, and compared AMD stock vs. Nvidia.
Dow Jones Futures today
Dow Jones futures were steady versus fair value. S&P 500 futures and Nasdaq 100 futures were little changed.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
KB Home Income
KBH shares rose in extended trading after KB Home earnings beat solid with revenue unexpectedly up 1%. The homebuilder also guided higher. KB Home shares rose 1.9% to 52.01 on Wednesday, extended from various entries.
Accenture (ACN) will report early Thursday. The IT consulting giant announced on Wednesday AI ties with Microsoft (MSFT), Google and Amazon (AMZN). ACN shares fell 1.3% to 313.20 on Wednesday, a third straight decline after a strong rally since early May.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock rally saw losses on the major indexes, but the Nasdaq bore the brunt of the selling.
The Dow Jones Industrial Average fell 0.3% in Wednesday’s trading. The S&P 500 index fell 0.52 percent. The Nasdaq composite fell 1.2%. The small-cap Russell 2000 fell 0.2 percent.
US crude oil prices rose 1.9% to $72.53 a barrel.
The 10-year government interest rate fell fractionally to 3.72%. The odds of an interest rate hike in July barely budged at a 72% chance of an interest rate hike in July. The markets are still pricing in less than a 20% chance of an additional rate hike this year.
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 0.6%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 0.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1.85%. The VanEck Vectors Semiconductor ETF ( SMH ) fell back 2.3%. Nvidia stock is the No. 1 component of SMH, with AMD also a heavy weight.
As a result of more speculative stock stocks, the ARK Innovation ETF (ARKK) fell 3.6% and the ARK Genomics ETF (ARKG) fell 2.7%. TSLA stock is the No. 1 holding across Ark Invest’s ETFs. Shares fell 5.5% on the downside, outside the Wednesday session, but remain above the 10-day mark. Tesla shares fell slightly overnight.
The SPDR S&P Metals & Mining ETF ( XME ) climbed 0.85% and the Global X US Infrastructure Development ETF ( PAVE ) 0.9%. The US Global Jets ETF (JETS) fell 0.1 percent. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.5%. The Energy Select SPDR ETF (XLE) climbed 0.8% and the Health Care Select Sector SPDR Fund (XLV) was fractionally higher.
The Financial Select SPDR ETF (XLF) was down 0.1 percent. The SPDR S&P Regional Banking ETF (KRE) fell 1.5 percent.
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Nvidia vs. AMD shares
Nvidia fell 1.7% to 430.45 on Wednesday, off session lows. AMD stock tumbled 5.7% to 112.13. But the real divergence is in the charts. NVDA stock fell after hitting a record high on Tuesday. It is still well above the 10-day and 21-day lines.
In contrast, AMD stock broke through its 21-day line on Wednesday and undershot recent lows after falling to that level on Tuesday. It was the fifth decline in six sessions for AMD, with four on above-average volume. It all started with a reversal to the downside on June 13, when AMD unveiled AI chips to challenge Nvidia.
If AMD investors hadn’t started scaling out sooner, Wednesday’s damaging losses were a place to take at least partial profits.
Nvidia shares and AMD have tended to trade off chip leadership in recent years, and it could happen again. But right now Nvidia is the leader while AMD is struggling somewhat.
Meanwhile, Google shares fell 2.1% on light volume Wednesday. But GOOGL stock fell below its 21-day mark for the first time since May 5, according to MarketSmith. A good day can change the picture. But for now, GOOGL stock looks weaker than the other megacap techs.
Chipotle shares rose 1.2% to 2,073.67 on Wednesday, after Wedbush raised its price target to 2,300 from 2,200. Shares rebounded modestly from the 21-day and 10-week lines, broke a downtrend and cleared some short-term levels. All of these provided reasons for an early entry, even as shares came off intraday highs of 2,092.51. CMG shares have traded very closely. It boasts a four-week tight with a buy point of 2,139.88 that is on track to be a flat base after Friday.
AI Stock Investor Day
C3.ai will hold an investor day event at 1:30 PM ET Thursday. Will the hot AI game provide some new financial guidance, perhaps before the opening? C3’s news and commentary can fuel or deflate AI enthusiasm.
AI shares fell 9.6% to 39.04, the third straight day of above-average volume. Shares are still more than double their early May lows and found support at the 21-day line.
PLTR stock tested its 21-day line on Wednesday, falling 7.3% to 14.64. It was also Palantir’s third straight fall in above-average trading.
Market rally analysis
The stock market retreated for a third session in a row, with a pullback from the Nasdaq now clearly underway.
The Nasdaq and Nasdaq 100 led Wednesday’s selloff. That’s a reversal from Tuesday, when Tesla and Nvidia continued to run higher. The Nasdaq just tested its 10-day moving average on Wednesday, still 2% above the 21-day line and 7.1% from the 50-day.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 1% on Wednesday, not as bad as the Nasdaq or the Nasdaq 100.
The Invesco S&P 500 Equal Weight ETF ( RSP ) lost just 0.1%, trading slightly higher for much of the session like the Dow and Russell 2000.
Decliners topped gains on the Nasdaq, but it wasn’t a wipeout. Meanwhile, winners topped losers slightly on the NYSE. New highs led on the NYSE, but lagged somewhat on the Nasdaq.
All this together looks positive. The Nasdaq and Nasdaq 100, fueled by major technology companies, had been expanding while the Dow, Russell 2000 and RSP ETFs were only gaining momentum, along with various non-tech sectors. Ideally, the Nasdaq will pull back gradually over several days or weeks, so that it is no longer extended, while the rest of the market just edges lower or moves sideways. That would create new buying opportunities across a range of stocks and sectors.
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What to do now
The share rise so far is in a normal, healthy decline.
Investors can look beyond technology for new buys now. But a Nasdaq-led market refuge is still a market refuge. Sideways-to-down action is not a good environment for making short-term purchases.
Right now, investors should wait to see how big winners of AI-infused 2023 respond. Are they resisting selling, finding support on the 10-day or 21-day lines?
Also keep an eye on shares that hold around buy points, such as e.g Monday.com (MNDY), Shockwave Medical (SWAV) and Rockwell Automation (YEAR).
The ones that look the strongest when the retreat is largely used will be the ones you want to target. Remember that big winners that look strong or find support may still fail, while harder-hit names like AMD may rise.
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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