Dow Jones futures rose slightly early Thursday, along with S&P 500 and Nasdaq futures. The stock market rally saw a flat to lower session on Wednesday.
The Nasdaq led the declines as Apple (AAPL), parent company of Google Alphabet (GOOGL) and Tesla stock extended big weekly losses. Shares of Apple and Google fell below some support levels as You’re here (TSLA) is approaching its bear market lows.
Tesla continued to slide on various news items on Thursday.
The sideways action over the past few weeks has been difficult to buy into strength. Choppy markets are chopping up investors. This is not the right time to add exposure.
Late Wednesday, the Pentagon said that Amazon.co.uk (AMZN), Google, Microsoft (MSFT) and Oracle (ORCL) has won cloud computing contracts of up to a combined $9 billion through 2028. In 2019, the Department of Defense awarded a $10 billion cloud computing contract, but canceled that deal in 2021 amid objections from Amazon.
The four tech giants were little changed in after-hours trading.
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Dow Jones futures were up 0.3% from fair value. S&P 500 futures rose 0.35% and Nasdaq 100 futures climbed 0.4%.
The 10-year Treasury yield rose 6 basis points to 3.47%.
Crude oil futures soared more than 3% after falling to 2022 lows on Wednesday. The Keystone pipeline was shut down due to a spill.
Copper rose 1%.
The Hang Seng index rebounded 3.4%, resuming its recent upward trend as local media reported that Hong Kong is considering ending its outdoor mask rule. US-listed Chinese stocks were pointing solidly higher.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
The stock market rally traded slightly lower for most of Wednesday’s session, closing generally in the red.
The Dow Jones Industrial Average climbed less than two points in Wednesday’s stock trading. The S&P 500 index fell 0.2%. The Nasdaq composite fell 0.5%. The Russell 2000 Small Cap Index fell 0.3%.
U.S. crude oil prices fell 3% to $72.01 a barrel, continuing to slide on global demand fears. Gasoline futures fell 3.4% to their lowest level in a year. Natural gas prices jumped 4.6% after a steep five-session decline.
The 10-year Treasury yield plunged 10 basis points to 3.41%, hitting its lowest level in nearly three months.
The inverse relationship between stocks and bond yields is fading because Treasury yields are now falling more on recession fears than easing inflationary pressures. A tame November CPI report on December 13 would always be applauded. While a half-point rate hike looks highly likely on December 14, progress on inflation would raise hopes for more modest hikes in early 2023 and an earlier end to the tightening. This would reduce the chances of a meltdown, or at least a hard landing.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 0.5%. ETF VanEck Vectors Semiconductor (SMH) closed just below break-even. Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 0.8% and ARK Genomics ETF (ARKG) rose 0.3%. TSLA stock is a major holding in Ark Invest 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) edged down 0.2% and the Financial Select SPDR ETF (XLF) fell 0.4%. The SPDR health care sector fund (XLV) climbed 0.8%.
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Apple Stock and Google Stock
Apple stock fell 1.4% on Wednesday to 140.94, hitting its lowest level since Nov. 10. So far this week, AAPL stock has fallen 4.65%, breaking above its 50-day line. The tech titan Dow Jones is approaching its October 13 low of 134.37, but is still far from its bear market low of 129.04 set on June 16.
Google stock fell 2.1% to 94.94, below its 50-day line. GOOGL stock is down 5.4% so far this week, erasing the gains of the previous three weeks. Stocks are still comfortably above their November 3rd bear market low at 83.34.
Tesla stock slipped 3.2% to 174.04 on Wednesday, closing in on 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 Chinese prices by 6,000 yuan for cars in stock. In addition to insurance subsidies, free charging and other benefits, Tesla is offering more than 21,000 yuan of car incentives in the field. This follows a general drop in prices at the end of October in China. And that comes ahead of government subsidies for electric vehicles that will end on December 31, which should drive demand forward. It also comes amid widespread reports – denied by Tesla – of impending production cuts in Shanghai.
Tesla’s Shanghai factory will shorten production shifts and delay the introduction of new hires due to weak Chinese demand, sources told Bloomberg. This follows widespread recent reports, denied by Tesla, that the electric vehicle giant is cutting Shanghai production by 20%.
Meanwhile, Tesla China chief Tom Zhu has been tapped to lead the Austin plant and ramp up production there, Bloomberg reported Thursday.
Elon Musk’s bankers could offer him new margin loans backed by Tesla stock to replace some of Twitter’s high-interest debt, Bloomberg reported late Wednesday. Banks have struggled to offload debt from Twitter. Musk has already pledged much of his Tesla stock.
TSLA stock fell slightly early Thursday.
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Market rally analysis
The stock market rally continued to decline, although the technical chart did not change significantly.
The Nasdaq tested its 50-day line, a day after falling below its 21-day moving average. Apple, Google and Tesla stocks weighed on large cap indices, but the underlying trend was also slightly lower.
Major indices generally trended higher from their lows on October 13, particularly the Dow Jones and the S&P 500. The market rally appeared to gain momentum at the end of last week, the S&P 500 above its 200-day line and the Dow Jones hitting a seven-month high.
But with the recent pullback, the major indices and Russell 2000 are basically where they were in early November or late October.
Sideways markets are among the most dangerous for investors, especially when there is upside and downside volatility. There is just enough upward force to attract buyers, but then the market drops for a while. This forces investors to cut their losses when they are small – with a good chance that stocks will rebound – or risk a much bigger downside.
The current choppy market rally has an additional hurdle. Most of the advance has occurred over a handful of one-day sessions, so it’s hard to even have mini uptrends to generate gains in new positions.
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What to do now
The stock market rally has reached resistance and is testing some key levels, but is not yet seriously damaged. If you have modest exposure with working positions, you don’t need to exit. Taking partial profits is never a bad idea in this market, of course.
But there’s a good chance anyone buying stocks over the past few weeks as they broke or gave early buy signals is down on those holdings. In a choppy, sideways market, when stocks start to look interesting, they may be about to peak.
Investors should be wary of adding exposure until the market can clear the recent trading range, with the S&P 500 sitting well above its 200-day line. That may not happen until after next week’s CPI inflation report and the Fed meeting.
Even then, investors should slowly increase their positions, in case the major indices pull back again after hitting near-term highs.
But keep working on those watchlists. Industrial and infrastructure games look good, as well as a variety of medicals. Some brokerages revolve around buying points. Chip device names are showing relative strength, with a number of semiconductor sets holding their own.
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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