Dow Jones futures will open Sunday evening, along with S&P 500 and Nasdaq futures.
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A new attempt at a stock market recovery began last week, with big initial gains for the Dow Jones and other major indexes. But as hopes of a Fed pivot faded again, Treasury yields rebounded and stocks fell on resistance. Along with the caveats of Advanced microdevices (AMD) and CVS Health ( CVS ) that hammered its stock at the end of the week, the major indexes erased most of their gains.
While the market’s attempted rally is not over, the Dow Jones, S&P 500 and Nasdaq are all near bearish market lows. Investors should be extremely cautious in the current environment.
vertex stock, Neurocrine Biosciences (NBIX) and Eli Lilly (LLY) are trading around buy points. NBIX stock i Vertex Pharmaceuticals (VRTX) are in the IBD classification.
Tesla (TSLA), Enphase Energy (ENPH) and About Semiconductor (ON), three stocks that had been close to buy points, suffered heavy selling. Shares of TSLA sold off Monday on disappointing deliveries, then continued to slide. Enphase shares briefly showed an aggressive buy signal on Tuesday, then fell sharply on Wednesday. ON shares closed above a trendline on Thursday and then fell on Friday as AMD sparked a chip selloff.
Mega bosses don’t help. Stock of Microsoft, parent of Google alphabet (GOOGL) and amazon.com ( AMZN ), all just below their 21-day lines on Thursday, fell sharply on Friday, returning to bear market or near-term lows. apple ( AAPL ), which never hit its 21-day low, skidded to near-term lows.
Microsoft (MSFT) and Google shares are in IBD’s Long-Term Leaders. ON shares are in the IBD 50. Onsemi, Vertex Pharmaceuticals (VRTX) and ENPH are in the IBD Big Cap 20. Vertex was the IBD Stock of the Day on Friday.
Dow Jones futures today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
Join IBD’s experts as they analyze actionable stocks in the stock market’s recovery on IBD Live
Stock Exchange meeting
An attempted stock market recovery got off to a good start, but rallied at the end of the week, hitting bear market lows again.
The Dow Jones Industrial Average rose 2% in the stock market last week. The S&P 500 rose 1.5%. The Nasdaq composite rose 0.7% after falling 3.8% on Friday. The small-cap Russell 2000 advanced 2.2%.
Apple shares rose 1.4% for the week, but sank 3.7% on Friday. Microsoft managed a weekly gain of 0.6% as AMD’s PC demand warning prompted Mr. Softy slipped 5.1% on Friday. Shares of Google and Amazon rose 3.2% and 1.4%, respectively, also paring strong weekly gains on Friday.
The 10-year Treasury yield rose 8 basis points to 3.88%, rising for a tenth straight week. This after falling to 3.56% on Tuesday intraday, testing its 21-day line. The 10-year Treasury yield is approaching 12-year highs near the 4% set at the end of September.
The US dollar, which had fallen sharply at one point, clawed back a modest weekly gain.
U.S. crude futures rose 16.5% to $92.64 a barrel, a five-day high. The OPEC+ production quota cut of 2 million barrels per day boosted gains. Meanwhile, US shale operators remain cautious about increasing drilling.
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ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.7% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) gained 1.2%. The iShares Expanded Technology Software Sector ETF ( IGV ) rose 2.6%, with MSFT shares taking a massive turn. The VanEck Vectors Semiconductor ETF ( SMH ) rose 1.9% but sold off sharply on Friday amid AMD’s warning and an extended U.S. ban on chip technology exports to China. AMD stock is a large SMH holding with On Semiconductor a notable component.
Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) fell 0.6% last week and the ARK Genomics ETF (ARKG) fell 0.15%, after both sold more than 6% on Friday. Tesla stock remains a major holding in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) rose 7.3% last week. The Global X US Infrastructure Development ETF (PAVE) rose 3.4%. US Global Jets ETF (JETS) rose 3.7%. SPDR S&P Homebuilders ETF ( XHB ) rose 4.5%. The Energy Select SPDR ETF ( XLE ) rose 13.6% and the Financial Select SPDR ETF ( XLF ) rose 1.9%. The Select Healthcare Sector SPDR Fund ( XLV ) rose 1.25% with a heavy stake in LLY shares.
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Tesla stock
Shares fell 16% last week to 223.07, after Tesla’s record third-quarter deliveries failed to appreciate amid China demand concerns. Elon Musk indicated that he will go ahead with the Twitter (TWTR), reviving fears that it will sell more TSLA stock to finance the deal. Musk, who announced the start of production of the Tesla Semi, was unable to provide an upgrade on Friday. Shares remain above late May lows of 206.84, but not by much.
Analysis of market concentration
The stock market action last week was almost textbook. The major indices, off bear market lows, rebounded strongly from deeply oversold conditions from Monday to Tuesday. But the stock market’s attempted rally quickly hit resistance at the 21-day moving average, while Treasury yields and the dollar recovered. Selling intensified on Friday on the strong jobs report, pushing yields and the dollar further higher.
And now what? The stock market’s attempted rally remains in effect until the major indices break off their recent lows. But the Dow, S&P 500 and Nasdaq are not far behind.
A follow-up day could still arrive at any time to confirm the market’s bullish trend. That would be a positive sign. Investors should be cautious, especially if indices stage an FTD below their 21-day lines. Also, a follow-up ahead of Thursday’s consumer price index carries additional risks.
New leg of the bear market?
On the other hand, the risks are high that the bear market escapes elsewhere.
The market rallied earlier in the week amid hopes the Federal Reserve would hold off on rate hikes, perhaps in part because of tensions overseas. The fall in job offers and the small rise in Australia’s rates strengthened this case. But Fed officials continue to insist they are not backing down, while Friday’s jobs report was too warm. Ultimately, the odds of a fourth consecutive rate hike of 75 basis points in November, already high, strengthened over the past week. Markets are close to locking in at least 50 basis points in December, with a small but growing possibility of 75 basis points.
On top of Federal Reserve and recession concerns, earnings season could be a minefield. The AMD and CVS warnings follow other high-profile prior announcements, with earnings set to begin next week. Even after a long bear market and clearly difficult trading conditions, the markets have yet to deliver bad news, with shares of AMD and CVS falling more than 10% on Friday.
Key sectors
Energy stocks look strong as crude prices rise. Many look stretched after big climbs, though.
Meanwhile, rising oil prices may be bad news for the overall market. Higher energy costs, especially gas prices, will complicate the Federal Reserve’s job of curbing inflation. Gas prices had already rebounded significantly, especially in California, on several refinery issues.
Some biotech and drug names are still performing well, somewhat insulated from economic concerns. But can they make much headway if the overall market heads to new lows?
Meanwhile, some tech and medical product names that had shown buy signals in recent days were big losers on Friday. Some held up reasonably well, while others sold off heavily, including shares of ENPH and On Semiconductor. Tesla shares, which even a week ago were near an entry point, fell to 2022 lows.
Shares of Apple, Microsoft and other tech titans aren’t leading the downside, but they’re certainly not underpinning the major indexes.
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what to do now
The case for being all or all cash remained strong even at weekly highs, and is even stronger now. The market’s attempted comeback is faltering. Indices could soon fall below bear market lows.
If you’ve bought some new positions recently, other than the energy sector and selected medicals, you may have had to cut or exit them. Even if you’re just taking pilot positions, don’t let your losses mount. If you have earnings, you may want to lock in a portion of them based on general market conditions.
Keep working on your watchlists and stay committed. The market’s attempted rally could yet come back to life, which would likely trigger buy signals for a large number of stocks. So focus on the actions that are being set up. But you also keep a broader list of strong stocks that are showing relative strength, even if their charts need repairs.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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