Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
This week’s stock market rally was heavily damaged in the wake of the Fed’s aggressive forecasting and weak economic data that caused the Federal Reserve to drive the economy into recession. The Nasdaq and S&P 500 index ended the week below their 50-day moving averages.
Megacap stocks continue to be a drag on major indices in particular Apple (AAPL) and Tesla (TSLA), with TSLA stocks plunging to new bear market lows. Amazon.nl (AMZN) and Google older Alphabet (GOOGL) are not far from their lows. Microsoft didn’t lose too much this week, but fell back from the 200-day line. Nvidia (NVDA), which was part of a chip rebound, returned lower, back under key support.
But the mega caps do not hide the underlying strength. Most of the stocks that had given buy signals in recent days and weeks turned south. Leading sectors also suffered.
Insulation (PODD), Commercial metals (CMC), Eleven beauty (ELF), Peabody energy (BTU) and Dow Jones giant Caterpillar (CAT) hold up relatively well. However, none are currently executable.
Investors should be wary of making purchases in the current market, but focus on reducing exposure and building watchlists.
The video embedded in this article discussed the market action in depth while also analyzing the shares of Insulet, Elf Beauty, and CAT.
Dow Jones Futures Today
Dow Jones futures open at 6pm ET, along with S&P 500 futures and Nasdaq 100 futures.
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 boomed on Tuesday morning, but then sold hard and ended the week with significant losses.
The Dow Jones Industrial Average fell 1.7% during last week’s stock trading. The S&P 500 index lost 2.1%. The Nasdaq composite fell 2.7%. The small-cap Russell 2000 lost 2.4%.
The 10-year Treasury yield fell 9 basis points to 3.48%. Despite the Fed’s aggressive talk, markets are expecting rate hikes of a quarter point in February and March, but with a growing likelihood of no move in March.
US crude oil futures rose nearly 5% last week to $74.29 a barrel.
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Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) erased big early gains to finish the week up 0.5%, with MSFT stocks a key stake. The VanEck Vectors Semiconductor ETF (SMH) experienced its own external downturn week, losing 2.9%. Nvidia stock is a top SMH component.
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) fell 4% last week, just above its five-year low. ARK Genomics ETF (ARKG) fell 0.4%. Tesla stock remains an important position in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) fell 2.6% last week. The Global X US Infrastructure Development ETF (PAVE) lost 2.6%. US Global Jets ETF (JETS) fell 3.6%. SPDR S&P Homebuilders ETF (XHB) rose 0.4%, but closed close to weekly lows. The Energy Select SPDR ETF (XLE) recovered 2% and the Financial Select SPDR ETF (XLF) lost 2.5%. The Health Care Select Sector SPDR Fund (XLV) lost 1.8% after near-record highs on Tuesday.
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Dow Jones tech titan Apple shares sold 5.4% this week to 134.51. AAPL interrupted the lows of October and November, followed by a bear market low of 129.04 in June. Fellow Dow component Microsoft plunged 0.3% to 244.69, but after pulling back from 263.92 Tuesday morning as it hit the 200-day line. Amazon shares fell just 1.4% to 87.66, but tumbled from weekly highs of 96.25 to near the November 9 bear market low of 85.87. Google stock fell 2.8%, lower than Tuesday’s highs. Nvidia crossed the 50-day mark early in the week, but ended up down 2.5%.
Tesla stock was the big loser, falling 16.1% to 150.23, its lowest point since November 2020. It was the worst weekly drop since the Covid crash in March 2020. Concerns about Chinese demand, Elon Musk’s TSLA’s latest sale and Musk’s Twitter focus all weigh on stocks.
Tesla is set to build a new car plant in northeastern Mexico, Bloomberg reported Friday night, with an announcement likely in the coming days. It is unclear which vehicles the factory will produce. A factory in Mexico would offer a relatively lower cost than Tesla’s factories in Fremont, Austin and Berlin, yet be close to the US
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Analysis of the market rally
In a matter of days, the stock market rally abruptly shifted from tumbling above a trading range. The weekly percentage losses on the major indices were large, but the damage was much worse.
Shortly after Tuesday’s open, the major indices all reached rally highs based on a subdued inflation report, with the S&P 500 back above the 200-day line and the Dow Jones at its best level in nearly eight months. But the indexes cut gains, with the S&P 500 closing below 200 days. On Wednesday, major indices fell as the Federal Reserve and Fed head Jerome Powell announced several more rate hikes.
On Thursday, sales increased amid weak economic data fueling fears of a recession. The Nasdaq and Russell 2000 fell below their 50-day lines, while the S&P 500 and Dow Jones broke below their 21-day lines. They all fell to their worst levels in over a month, undercutting weeks of sideways trading.
On Friday, the S&P 500 dipped below the 50-day mark. The Dow is almost there.
It was a big, negative off-week for all major indices, with highs and lows surpassing the range of the previous four weeks.
Leading stocks have had a rough time, with few exceptions. Industrials, solar, medicals, travel and various chip and network names are all under moderate to intense pressure.
Megacap stocks generally remain clear laggards. Tesla shares continue to fall to new two-year lows. Amazon shares are just above bear market lows, while Google is moving in that direction. AAPL shares fell to their lowest level in nearly six months, with lows in sight.
Microsoft stock and Nvidia may not be laggards, but they’re not leaders either. Both are below their 200-day limit.
Perhaps this upward trend is a bear market rally that has run its course, with indices returning to their October lows. Perhaps the S&P 500 will recover quickly or stay within a range for an extended period of time.
The only thing that is clear is that the market is not doing well right now.
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What to do now
Investors should reduce their exposure due to the deteriorating overall market and the performance of most individual stocks.
Although under pressure, it is still a market rally. A few good days could bolster confidence in the uptrend and drive more stocks back into buying areas. Of course, even in that scenario, investors should be wary of new purchases given the pattern of the rally of pullbacks and the erasing of solid gains.
So stay involved. Keep working on watchlists. Focus on stocks that maintain key moving averages and support levels and that generally show strong relative strength, such as stocks of Caterpillar, Insulet, and ELF.
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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