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Why this market rally is so dangerous; Tesla Nears Bear Lows On This Move




Dow Jones futures fell slightly in extended trade, along with S&P 500 futures and Nasdaq futures. The stock market rally had a flat-to-lower session on Wednesday.




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The Nasdaq led decliners as apple (AAPL), Google parent Alphabet ( GOOGL ) and Tesla shares extended big weekly losses. Apple and Google shares broke below some support levels while Tesla ( TSLA ) is nearing bear market lows.

The sideways action in recent weeks has been challenging to buy on strength. Choppy markets chop up investors. It is not a good time to add exposure.

Late Wednesday, the Pentagon said so Amazon.com (AMZN), Google, Microsoft (MSFT) and Oracle (ORCL) won cloud computing contracts that could reach a combined $9 billion through 2028. In 2019, the Defense Department awarded a $10 billion cloud computing contract, but canceled that deal in 2021 amid Amazon’s objections.

The four technology giants were little changed in after-hours trading.

Dow Jones Futures today

Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%.

The 10-year government yield rose 4 basis points to 3.45%.

Crude oil futures rose slightly.

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 traded modestly lower for most of Wednesday’s session, generally closing in the red.

The Dow Jones Industrial Average climbed less than two points in Wednesday’s trading. The S&P 500 index fell 0.2 percent. The Nasdaq composite fell 0.5 percent. The small-cap Russell 2000 fell 0.3%.

U.S. crude oil prices fell 3% to $72.01 a barrel, continuing to fall on fears of global demand. Gasoline futures fell 3.4% to a one-year low. Natural gas prices rose 4.6% after a sharp decline in five sessions.

The 10-year Treasury yield fell 10 basis points to 3.41%, hitting its lowest level in nearly three months.

The inverse relationship between stock and bond yields is declining because government yields are now falling more due to recession fears to ease inflationary pressures. A tame November CPI report on December 13 would still be cheered. While a half-point rate hike seems very likely on December 14, progress on inflation will raise hopes for smaller increases in early 2023 and an earlier end to tightening. It will reduce the risk of a decline, or at least a hard landing.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.5%. The VanEck Vectors Semiconductor ETF (SMH) closed just below break-even. As a result of more speculative stock stocks, the ARK Innovation ETF (ARKK) fell 0.8% and the ARK Genomics ETF (ARKG) rose 0.3%. TSLA stock is a large holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) fell 0.3% and the Global X US Infrastructure Development ETF ( PAVE ) lost a fraction. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF (XHB) rose 1.8%. The Energy Select SPDR ETF (XLE) was down 0.2% and the Financial Select SPDR ETF (XLF) was down 0.4%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.8%.


Top five Chinese stocks to watch now


Apple Stock And Google Stock

Apple shares fell 1.4% on Wednesday to 140.94, hitting their lowest level since Nov. 10. So far this week, AAPL stock has fallen 4.65%, undercutting its 50-day line. The Dow Jones tech titan is nearing its Oct. 13 low of 134.37, but remains some distance from the 129.04 bear market set on June 16.

Google shares fell 2.1% to 94.94, below the 50-day mark. GOOGL stock is down 5.4% so far this week, erasing gains from the previous three weeks. Shares remain comfortably above their Nov. 3 index low of 83.34.

Tesla shares

Tesla shares slid 3.2% to 174.04 on Wednesday, nearing the bear market low of 166.19 set on Nov. 22. Shares are down 10.7% so far this week. TSLA stock is down more than 50% in 2022.

On Wednesday, Tesla cut China prices by 6,000 yuan for cars in stock. Along with insurance subsidies, free charging and other goodies, Tesla is offering over 21,000 yuan in incentives for cars on the lot. A price cut follows at the end of October in China. And it comes ahead of government EV subsidies that end on December 31, which should pull demand forward. This also comes amid widespread reports – denied by Tesla – of looming production cuts in Shanghai.

Meanwhile, Tesla will reportedly reintroduce radar to its vehicles in early 2023. Elon Musk pulled radar in 2021, saying that vision alone was better for self-driving, unlike almost everyone else working on autonomous driving.


Tesla vs. BYD: Which EV giant is the best buy?


Market rally analysis

The stock rally continued its decline, although the technical picture did not change significantly.

The Nasdaq tested its 50-day line, a day after falling below its 21-day moving average. Apple shares, Google and Tesla weighed on the large-cap indexes, but the underlying trend was also slightly lower.

The major indexes have generally trended higher from their Oct. 13 lows, particularly the Dow Jones and the S&P 500. The market rally appeared to gather momentum late last week, with the S&P 500 above its 200-day line and the Dow Jones hitting a seven months high.

But with the recent pullback, the major indexes and the Russell 2000 are essentially where they were in early November or late October.

Sideways markets are among the most dangerous for investors, especially when there is volatility up and down. There is just enough strength on the upside to lure buyers in, but then the market swings lower for a while. That forces investors to either cut losses when they’re small — with a good chance the stock will bounce back — or risk a much bigger decline.

The current choppy market rally has an additional hurdle. Most of the progress has come in a handful of one-day sessions, so it’s difficult to have even mini-trends to build gains in new positions.


Time the market with IBD’s ETF market strategy


What to do now

The stock rally has hit resistance and is testing some key levels, but is not seriously damaged yet. If you have modest exposure with positions that are working, you don’t need to exit. Of course, taking partial profits is never a bad idea in this market.

But there’s a good chance that someone who bought stocks over the past few weeks when they broke out or flashed early buy signals is down on these holdings. In a sideways, choppy market, when stocks start to look interesting, they may be about to top out.

Investors should be cautious about adding exposure until the market can clear the recent trading range, with the S&P 500 decisively above its 200-day line. That cannot happen until after next week’s CPI inflation report and Fed meeting.

Even then, investors should increase positions slowly, in case the major indexes pull back again after reaching short-term peaks.

But keep working on these watchlists. Industrial and infrastructure games look good, along with a variety of medicines. Some brokerages hover around buy points. Chip equipment names show relative strength, with a number of semiconductor games holding up OK.

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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