Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures as the market rally continued. broadcom (AVGO) and the artificial intelligence game C3.ai led gains overnight. The ISM Services Index report will be key on Friday morning.
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The stock market rally roared back on Thursday from opening lows, even as the 10-year Treasury yield decisively topped 4%. A generally weak open turned into a solidly positive day as a Fed official backed a quarter point move.
salesforce.com (CRM) lifted the Dow. tesla (TSLA) fell, weighing on the S&P 500 and Nasdaq.
Some stocks, including Salesforce, showed buy signals. But the uptrend of the market is still under pressure with key tests ahead.
broadcom (AVGO) and artificial intelligence games C3.ai (AI) and veritone (VERI) reported Thursday night.
The video embedded in this article reviewed Thursday’s market action and analyzed CRM stocks, Aehr test systems (AEHR) and dexcom (DXCM).
Dow Jones Futures Today
Dow Jones futures were down 0.1% against fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%.
The 10-year Treasury yield fell 1 basis point to 4.06%.
ISM will release its February non-manufacturing index at 10 am ET. The hot January ISM services index on February 3, along with the jobs report, helped trigger the pullback of the market’s rally from the highs.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading at the next regular stock market session.
key gains
AVGO shares rose in extended trading after Broadcom’s earnings topped views, with second-quarter revenue guidance also slightly higher. Broadcom shares rose 0.9% to 598.65 in regular trading on Thursday, bouncing from the 21-day line after recently bouncing from the 50-day/10-week lines. AVGO shares have a buy point of 617.11 on a long consolidation. But the chip and software maker is just in for an early entry.
AI shares were up 18% at the end of the trade, signaling a possible buy signal as C3.ai earnings results beat views and the company led higher. AI shares rose 2.8% to 21.31 on Thursday after dipping below their 21-day line on Wednesday. A strong rally on Friday could offer an aggressive entry for AI shares after breaking a trend line from its early February peak.
VERI shares rose nearly 8% overnight. Veritone’s earnings and revenue were not met, but new bookings were up 141%. The shares fell 1.2% to 6.36 on Thursday. Veritone shares bottomed out in late January and rallied for a few days before pulling back. VERI shares are now below the 50 and 200 day lines.
costco wholesale (COST), nordstrom (JWN) and Z scaler (ZS) also reported. COST shares fell 2.5% and Nordstrom edged lower on mixed results. ZS shares tumbled 11.5% as turnover failed to impress. All three closed below their 200-day lines.
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stock rally
The Dow Jones industrial average rose 1.05% in trading on Thursday. The S&P 500 Index rose 0.8%, with shares of Salesforce and DXCM the best performers and Tesla the worst performers of the day. The Nasdaq Composite advanced 0.7%. The small-cap Russell 2000 rose 0.2%.
US crude prices rose 0.6% to $78.16 a barrel for the third straight session. Gasoline futures were up nearly 1%, up 14.5% so far this week.
The 10-year Treasury yield jumped 8 basis points to 4.07%, closing above the 4% level for the first time since November 9. This is because US jobless claims. The 10-year yield is not far from October’s 15-year high of 4.33%.
Atlanta Fed President Rafael Bostic said he is “strongly” in favor of a quarter-point increase at the March meeting, after several lawmakers signaled their support or were open to a half-point move. . However, Bostic is a non-voting member in 2023.
Markets are solidly expecting at least three more quarter-point Fed rate hikes, but with a decent chance of a 50 basis point move in March or May. And some are now slightly in favor of a fourth quarter point hike at the July meeting. That would bring the federal funds range to 5.5%-5.75% from the current 4.5%-4.75%.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.1%. The iShares Expanded Technology Software (IGV) Sector ETF rose 2.4%. CRM shares are an important IGV share. The VanEck Vectors Semiconductor (SMH) ETF closed up 0.9% after falling on Thursday morning.
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) was up 1.2% and the ARK Genomics ETF (ARKG) was up 0.4%. Tesla stock is a major holding in Ark Invest ETFs.
SPDR S&P Metals & Mining ETF (XME) rose 0.4% and the Global X US Infrastructure Development ETF (PAVE) advanced 1.2%. The US Global Jets ETF (JETS) rose 0.45%. The SPDR S&P Homebuilders ETF (XHB) rose 0.7%. The Energy Select SPDR ETF (XLE) warmed 0.9% and the Financial Select SPDR ETF (XLF) fell 0.5%. The Select Healthcare Sector (XLV) SPDR Fund gained 0.6%. DXCM shares are part of the XLV ETF.
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Tesla Stock
Tesla shares fell 5.85% to 190.90, moving below the 21-day line for the first time since January 19. From a technical perspective, TSLA stock may just be offering a jolt. That could allow the 50-day line to catch up while the 200-day line declines to the Feb. 16 high of 217.65. A decisive move above those levels would offer an aggressive entry.
But Tesla doubled from its January 6 low of 101.81 due to three factors: the Tesla Investor Day buzz, the revival of demand from price cuts, and the general market rally, led by shares of highly valued growth.
But Tesla’s Investor Day was largely a null event, with no new EV design on show, let alone the idea that a low-cost model could go into production.
Tesla orders initially rose due to global price cuts in January as well as US tax credits, but demand appears to be declining again, raising the risk of further price cuts, at least in China. and Europe, further reducing profit margins.
Finally, the growth-led market rally has cooled in recent weeks, with risks of the uptrend turning into a correction.
Market recovery analysis
The stock market rally appeared to be in deep trouble at the open on Thursday, with the S&P 500 chipping away at its 200-day line. The Nasdaq Composite, which fell below its 200-day line on Wednesday, was moving toward its 50-day line. Even the Russell 2000 tested their 10 week line.
But even with Treasury yields rising, the major indices quickly improved and then turned broadly positive in the afternoon. That’s despite high Treasury yields and with mega-cap TSLA stocks having a bad day.
The S&P 500 recovered its 50-day line while the Nasdaq pulled back above its 200-day line. The Dow, buoyed by CRM stock’s 11.5% gain on earnings, led the advance but is still near 2023 lows. The Russell 2000 closed slightly below its 21-day moving average , where it hit resistance for several days.
The Russell, Nasdaq and S&P 500 all need to recapture their 21-day lines decisively to offer reasonable evidence that the market rally is regaining momentum. The February 2 highs would be the next big test above that.
Major stocks, which have outperformed indices for the past month, also showed strength on Thursday. In addition to stock CRM, okta (OKTA) parted ways on an earnings basis. DXCM shares flirted with buy signals. FirstSource Builders (BLDR) outperformed a long consolidation. Many others extended moves from buy areas or moved into positions.
But, if the indices plunge further, the leaders will collapse as well. It’s hard to see the major indices holding if Treasury yields continue to rise. Friday’s ISM Services Index and market reaction to that report will be important.
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What to do now
The stock market rally scored a much-needed victory on Thursday. Several leading stocks showed buy signals as major indices gained momentum.
But the uptrend of the market is still under pressure. The S&P 500 and Nasdaq are just one bad day away from breaking below key levels.
Investors should be careful when adding exposure. If the S&P 500 and Nasdaq move above their 21-day lines, you could gradually rebuild your portfolio.
At this point, you want to quickly re-evaluate your watch lists.
With the market in such a tight trading area, a decisive move up or down could be in the offing soon. So be flexible and stay alert.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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