Dow Jones futures changed little overnight along with S&P 500 futures and Nasdaq futures. The stock market rally fell Thursday morning on hawkish statements from the Fed, extending Wednesday’s losses. But major indices recovered from some key levels and closed slightly lower.
Treasury yields rallied while the price of crude oil plummeted.
Apple (AAPL), Microsoft (MSFT) and Google older Alphabet (GOOGL), the only $3 trillion stock on US exchanges, rose after testing support on their 50-day moving averages. In the meantime, Tesla (TSLA) retreated toward its bear market lows.
Investors should be cautious in the current market, build their exposure slowly, and be ready to take profits quickly and cut losses.
Applied materials (AMAT), Palo Alto Networks (PANW), Empty field (CLFD) and Ross stores (ROST) all topped the EPS and sales readings late Thursday, with strong guidance overall as well.
AMAT stock rose modestly overnight, poised to bounce back above the 200-day mark. PANW shares rose, signaling a move above 50 days. CLFD stock rose in extended trading and attempted to bounce above the 50-day line as it attempted to build the right side of a double bottom base. ROST stocks shot to 2022 highs after coming within range of a low.
JD.com (JD) and Atkore (ATKR) are on tap early Friday.
JD shares rose 7.5% Thursday, reaching the 200-day line, following alibaba (BABA) earnings beginning Thursday. ATKR shares fell 3.5% on Thursday, but were comfortably above the 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 0.3%, with AMAT and PANW technologies lifting stocks.
Crude oil futures rose 1%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally fell sharply at the open as St. Louis Fed President James Bullard and Kansas City Fed President Esther George issued aggressive statements. Major indices rallied and closed flat to slightly lower.
The Dow Jones Industrial Average was just below breakeven during Thursday’s stock trading. The S&P 500 index fell 0.3%. The Nasdaq composite fell 0.35%. The small-cap Russell 2000 lost 0.9%.
Apple shares rose 1.3%. Microsoft shares returned two cents, Google shares fell 0.5%. All tested their 50-day lines intraday. They’re all under their 200-day limit with no clear buy points. Tesla shares fell 2%, closing in on the November 9 bear market low.
US crude oil prices fell 4.6% to $81.64 a barrel. In addition to the Fed’s aggressive remarks, blame Beijing’s renewed emphasis on the “zero-Covid” policy. China’s State Council reportedly warned cities to avoid “irresponsible relaxation” of Covid-19 measures just a week after that senior body backed easing rules. On Wednesday, Peking University closed down on a single case. Covid infections have skyrocketed in China over the past two weeks.
Hawkish Fed raises Treasury yields
The yield on 10-year Treasury bills rose 8 basis points to 3.77%.
St. Louis Fed’s Bullard said the Fed Funds rate, currently at 3.75%-4%, may need to go as high as 7%, well above the consensus of about 5%. George of the Kansas City Fed said a recession may be needed to bring inflation down.
One of the reasons policymakers sound aggressive is to drive up market interest rates and curb the stock market rally. If financial conditions ease substantially on the Fed’s central hopes, inflation could stay high longer, forcing the Fed to tighten official interest rates even further.
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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was down 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2.65%, even with MSFT stocks a major component. PANW Shares is also an IGV holding company. The VanEck Vectors Semiconductor ETF (SMH) fell 0.5%, with AMAT stock a notable SMH position.
SPDR S&P Metals & Mining ETF (XME) fell 2.1%. SPDR S&P Homebuilders ETF (XHB) retreated 2%. The Energy Select SPDR ETF (XLE) was down 0.5% and the Health Care Select Sector SPDR Fund (XLV) was down 0.2%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 2.8% and ARK Genomics ETF (ARKG) was up 3.2%. TSLA stock is a major stock in Ark Invest’s ETFs.
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Stock Market Rally Analysis
The stock market rally tested a number of key levels as it opened Thursday. The Nasdaq found support just above its 50-day moving average. The S&P 500 fell briefly to its near-term highs in October. The Russell 2000 recovered from nearly its 21-day line. The S&P 400 MidCap held its 200-day line.
The market was likely due for a pullback after a strong run and the S&P 500 was approaching its 200-day line. At the same time, the market rally on Thursday found support in key areas. So the past few days have been normal and somewhat constructive for major indices – assuming they can hold Thursday’s lows and eventually move higher.
However, the market’s pullback from Tuesday’s intraday high to Thursday morning’s low hit a number of stocks that broke out or made flashy early entries in recent days. Several tested those entries or failed outright. Some bounce back while others may. In some cases, the previous purchase points are still valid, while in others new handles or other inputs must be set. Still others may struggle for an extended period of time.
A wide variety of stocks and sectors show interesting action.
In all these cases, a healthy market rally will be key.
Apple stock, Microsoft and Google are not market leaders and may not be for a while. But if they can avoid being left 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 overall trend has been higher in recent weeks. But it’s been a winding road for investors.
Anyone who bought stock after the follow-up day of Oct. 21 was likely underwater in early November. While the indices peaked on Nov. 10 on the tame CPI report, the Nasdaq, S&P 500, and Russell 2000 have been stable ever since.
The stock market rally remains choppy, with sector rotation and large intraday swings complicating matters. Buying opportunities have often been the time when the market pulls the rug out of investors.
So keep the lighting light. Add exposure gradually – and be ready to reduce exposure due to market conditions or individual rules for selling stocks.
Keep your watchlist up to date so you can spot emerging leaders.
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 market updates and more.
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