Dow Jones futures were little changed overnight, as were S&P 500 and Nasdaq futures. The stock market rally fell Thursday morning on hawkish statements from the Fed, extending Wednesday’s losses. But the major indexes bounced off some key levels to close slightly lower.
Treasury yields rebounded as crude oil prices fell.
Apple (AAPL), Microsoft (MSFT) and parent company of Google Alphabet (GOOGL), the only three trillion-dollar stocks on US exchanges, rebounded after testing support at their 50-day moving averages. Meanwhile, You’re here (TSLA) retreated to its bear market lows.
Investors should be cautious in the current market, add exposure slowly, and be prepared to take profits and cut losses quickly.
Applied materials (AMAT), Palo Alto Networks (PANW), Free field (CLFD) and Ross Stores (ROST) all topped EPS and sales views on Thursday night, with forecasts also generally strong.
AMAT stock rose slightly overnight, on the verge of returning above its 200-day line. PANW stock jumped, signaling a move above its 50-day mark. CLFD stock surged in the extended trade, looking to bounce above the 50-day line as it attempts to build the right side of a double-bottom base. ROST stock exploded towards 2022 highs after approaching a low base.
JD.com (JD) and Atkore (ATKR) are available early Friday.
JD stock jumped 7.5% on Thursday, to its 200-day line, after Ali Baba (BABA) results early Thursday. ATKR stock fell 3.5% on Thursday but was comfortably above its 200-day line as it operates on the right side of a deep cup base.
Dow Jones Futures Today
Dow Jones futures fell slightly from fair value. S&P 500 futures rose 0.1%. Nasdaq 100 futures rose 0.2%, with stock lift technologies AMAT and PANW.
Crude oil futures rose slightly.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally fell solidly at the open as St. Louis Fed President James Bullard and Kansas City Fed President Esther George made hawkish statements. Major indices rebounded to close flat or slightly lower.
The Dow Jones Industrial Average was just below breakeven in stock trading on Thursday. The S&P 500 index fell 0.3%. The Nasdaq composite fell 0.35%. Small cap Russell 2000 fell 0.9%.
Apple stock rose 1.3%. Microsoft stock fell two cents, Google stock fell 0.5%. All have tested their 50-day lines intraday. All are below their 200 day lines with no clear buy points. Tesla stock fell 2%, approaching its November 9 bear market low.
U.S. crude oil prices fell 4.6% to $81.64 a barrel. In addition to hawkish comments from the Fed, blame Beijing’s renewed emphasis on “zero-Covid” policies. China’s State Council has reportedly warned cities to avoid “irresponsible easing” of Covid-19 measures, just a week after the top body backed the easing rules. On Wednesday, Peking University locked down a single case. Covid infections have increased over the past two weeks in China.
Hawkish Fed Raises Treasury Yields
The 10-year Treasury yield rose 8 basis points to 3.77%.
The St. Louis Fed’s Bullard said the federal funds rate, currently at 3.75%-4%, may need to hit 7%, well above the consensus for around 5%. Kansas City Fed’s George said a recession might be needed to bring inflation down.
One of the reasons policymakers appear hawkish is to drive up market rates and dampen the stock market’s recovery. If financial conditions ease significantly on Fed pivot hopes, inflation could stay higher for longer, forcing the Fed to tighten official rates even further.
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Among the top ETFs, the Innovator IBD 50 (FFTY) ETF fell 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.65%, even with MSFT stock as a key contributor. The PANW share is also an IGV participation. The VanEck Vectors Semiconductor (SMH) ETF fell 0.5%, with AMAT stock a notable stake in SMH.
The SPDR S&P Metals & Mining ETF (XME) fell 2.1%. The SPDR S&P Homebuilders ETF (XHB) fell 2%. The Energy Select SPDR ETF (XLE) lost 0.5% and the Health Care Select Sector SPDR Fund (XLV) edged down 0.2%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 2.8% and ARK Genomics ETF (ARKG) 3.2%. TSLA stock is a major holding in Ark Invest ETFs.
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Stock market rally analysis
The stock market rally tested some key levels at Thursday’s open. The Nasdaq found support just above its 50-day moving average. The S&P 500 briefly hit its October short-term highs. The Russell 2000 rebounded near its 21-day line. The S&P 400 MidCap maintained its 200-day line.
Arguably, the market was due for a pullback after a strong run and the S&P 500 was approaching its 200-day line. Meanwhile, the market rally found support in important areas on Thursday. So the past two days have been normal and somewhat constructive for the major indices – assuming they can sustain Thursday’s lows and possibly rally.
However, the market’s pullback from Tuesday’s intraday high to Thursday morning’s low has hit a number of stocks that have either broken out or posted early entries over the past two days. Several have tested these entries or failed outright. Some bounce back while others can. In some cases, previous buy points are still valid, while others may need to set new handles or other inputs. Still others may struggle for an extended period.
A wide variety of stocks and sectors are showing interesting action.
In all of these cases, a healthy market recovery will be essential.
Apple, Microsoft and Google stocks are not market leaders and may not be for some time. But if they can avoid falling behind, that would be a big help.
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What to do now
The stock market rally showed encouraging action on Thursday. The general trend has been upward for several weeks. But the road has been winding for investors.
Anyone who bought stocks after the October 21 tracking day was likely underwater in early November. While the indexes hit highs on Nov. 10 on the CPI report, the Nasdaq, S&P 500 and Russell 2000 have been flat or down since then.
The stock market rally remains choppy, with sector rotation and sharp intraday swings complicating matters. Buying opportunities have often been when the market pulls the rug out from under investors.
So keep the exposure light. Gradually increase exposure – and be prepared to reduce exposure due to market conditions or individual stock sale rules.
Keep your watchlist up to date so you can spot emerging leaders.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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