Dow Jones futures fell slightly on Sunday night, along with S&P 500 and Nasdaq futures. The stock market is open on Monday, but bond trading is closed for Columbus Day.
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An attempted stock market recovery began last week, with big early gains for the Dow Jones and other major indexes. But as hopes of a Fed pivot faded again, Treasury yields rebounded and stocks fell. Along with the caveats of Advanced microdevices (AMD) and CVS Health (CVS), the major indexes erased most of their gains at the close on Friday.
Although the market’s attempted rally is not over, the Dow Jones, S&P 500 and Nasdaq are all back near bear market lows. Investors should be extremely cautious.
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 trend line on Thursday, but fell on Friday amid AMD’s chip sell-off.
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 fell 0.4% to fair value. S&P 500 futures sank 0.5% and Nasdaq 100 futures fell 0.5%.
US bond markets will be closed on Monday for Columbus Day, so stocks won’t adjust to Treasury yields.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
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Stock Exchange meeting
An attempted stock market recovery got off to a strong start, but indexes closed near bearish lows on Friday.
The Dow Jones Industrial Average rose 2% in the stock market last week. The S&P 500 rose 1.5%. The Nasdaq 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%, but suffered a 5.1% drop on Friday on AMD’s PC demand warning. Shares of Google and Amazon rose 3.2% and 1.4%, respectively, also paring strong weekly gains on Friday.
The 10-year Treasury yield rebounded for a tenth consecutive week, rising 8 basis points to 3.88%. This after falling to 3.56% on Tuesday intraday, testing its 21-day line. The 10-year Treasury yield is nearing 12-year highs around 4% set at the end of September.
The US dollar rebounded after heavy losses for 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.
Time the Market with IBD’s ETF Market Strategy
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 fell sharply on Friday on AMD’s warning. 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 fell more than 6% 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. US Global Jets ETF (JETS) rose 3.7%. The Energy Select SPDR ETF ( XLE ) rose 13.6%. 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 deliveries missed third-quarter views 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 are nearing a late May low of 206.84.
Tesla China delivered a record 83,135 vehicles in September, according to industry data. On Tuesday, investors will learn how many were sold in China and exported.
Analysis of market concentration
Last week’s stock market action 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 recovery quickly hit resistance at the 21-day line, while Treasury yields and the dollar rallied. Selling intensified on Friday on the strong jobs report.
The market’s attempted rally is in place 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. But investors should be cautious, especially if the 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?
Meanwhile, the risks of the bear market tapering off are high.
The market rebound came amid renewed hopes of slower rate hikes from the Fed. The fall in job offers and the small rise in Australia’s rates strengthened this case. But Fed officials insist they are not backing down, while the jobs report was too hot. Ultimately, the already high odds of a fourth straight 75 basis point rate hike in November were strengthened last week. Markets are close to locking in at least 50 basis points in December, with a small but growing possibility of 75 basis points.
Earnings season could be a minefield. AMD and CVS followed several other high-profile warnings, with earnings season about to begin. Markets have yet to fully price in bad news: AMD and CVS shares fell more than 10% on Friday.
Key sectors
Energy stocks rose as crude prices soared. Many seem elongated, however.
Rising oil prices can be bad news for the overall market. Rising gas prices complicate the Fed’s job of curbing inflation. Gas prices had already risen, 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 at various times last week later sold off. 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 aren’t underpinning the major indexes.
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what to do now
The case for being all or all cash remained strong even at last week’s highs, and is even stronger now with the market’s attempted rally.
If you’ve bought some stocks recently, other than the energy sector and select medical products, you may have already had to trim them. Even if you’re just taking pilot positions, don’t let your losses mount. If you have earnings, you may want to lock some of them.
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 many stocks. So focus on the actions that are being set up. But it also maintains a broader list of 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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