Dow Jones futures edged higher after hours, along with S&P 500 futures and Nasdaq futures. Palo Alto Networks and Coinbase reported Tuesday night, with Wingstop and chip giant Nvidia due on Wednesday.
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The stock market rally lost further ground, with the Dow breaking below a key level, while the S&P 500 and Nasdaq pulled back towards important support. The 10-year Treasury yield continued to rise, approaching the 4% level again amid better-than-expected and disappointing economic data. house deposit (HD) orientation.
Investors should take a more defensive stance at least in the short term.
Palo Alto Networks (PANW) and toll brothers (TOL) reported earnings on Tuesday night. So did three big Ark Invest holdings: exact Sciences (EXA), Crispr Therapeutics (CRSP) and coin base (CURRENCY).
wing stop (ALA) and TJX because (TJX) report early Wednesday morning. Wingstop dipped below a buy point again on Tuesday, while shares of TJX are not far from an early entry into a shallow bottom.
nvidia (NVDA) Earnings loom on Wednesday night, a key report for the chip sector and the overall market rally.
WING shares are on the IBD Leaderboard and IBD 50.
The video embedded in the article reviews Tuesday’s market sell-off and discusses autoliv (ALV), Lamb Weston and Wingstop.
Dow Jones Futures Today
Dow Jones futures were up 0.1% against fair value. S&P 500 futures advanced 0.1% and Nasdaq 100 futures rose 0.15%.
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
PANW shares rose in late trading after Palo Alto earnings topped forecasts for the fiscal second quarter, but guidance was mixed. Palo Alto shares fell 1.4% to 166.89 on Tuesday, pulling back toward the 200-day line. A decisive move above last week’s high of 177.60 would clear resistance dating back several months, offering an entry.
TOL shares rose modestly after hours as fiscal first-quarter earnings topped views. Shares of Toll Brothers fell 2.6% on Tuesday to 55.70, nearing the 50-day and 10-week lines. After nearly doubling from last October through February 2, stocks fell back as Treasury yields recovered. But TOL shares have a handle cup buy point of 62.71.
EXAS shares fell modestly in overnight trading after Exact Sciences topped fourth-quarter views, but gave guidance in line for 2023. Exact Sciences shares could test the 50-day line on Wednesday after falling a 3 .5% to 61.26 on Tuesday.
CRSP shares rose slightly in extended action. Crispr reported a lower-than-expected fourth-quarter loss and said it is on track to complete its FDA submission by the end of the first quarter for its gene-edited therapy to treat sickle cell disease and transfusion-dependent beta-thalassemia. Crispr shares sank 4.8% on Tuesday to 62.07, dipping below the 50-day line.
COIN shares were lower overnight as Coinbase reported a slightly smaller-than-expected fourth-quarter loss as revenue fell 75%. COIN shares fell 8.4% to 46.63 on Tuesday, back to the 200 and 21-day lines. Investors could view a decisive bounce from these levels as something of an aggressive entry.
Shares of WING fell 4.2% to 166.21 on heavy volume on Tuesday, slipping below a cup-handle buy point of 169.04 that sold off last week, according to MarketSmith analysis.
TJX shares fell 1.3% to 78.82, slightly below the 50-day line on a 6%-deep flat basis. The official buy point is 83.23, but a strong move above the 50-day line would also break a trend line entry.
Nvidia shares fell 3.4% to 206.55 on Tuesday, just below its 21-day line. Microsoft (MSFT) announced that its Xbox games will be on Nvidia’s cloud gaming service. NVDA shares are stretched from a bottoming basis, but have a tight three-week pattern with a buy point of 230.59. At Wednesday’s close, the chip giant will likely hold a hold on a daily chart with that same entry, for consolidation going back to April. But Nvidia stock would still stretch from the 50-day/10-week lines.
Join IBD experts as they discuss actionable actions in the stock market rally on IBD Live
stock rally
The stock market rally opened lower on Tuesday, and selling soon picked up speed in S&P Global’s preliminary reading on the US economy, with the general index and services indicator trading above the level of balance of 50.
The Dow Jones industrial average plunged 2.1% in trading on Tuesday. The S&P 500 index fell 2%. The Nasdaq Composite fell 2.5%. The small-cap Russell 2000 fell 2.9%.
US crude prices fell 0.2% to $76.16 a barrel, extending heavy losses from last week. Natural gas futures plunged 8.9% on Tuesday and 19% over the past four sessions.
Copper prices rose 2.9%.
The 10-year Treasury yield jumped 13 basis points to 3.95%. It is the highest level since November and an increase of 62 basis points from the February 2 low. Part of this reflects optimism that the United States will not slide into a recession. But that also means that inflation is likely to be more persistent and the Fed may be inclined to be more aggressive. Markets now see at least an 80% chance of three more quarter-point rate hikes, with a small but growing chance of a half-point move in March or May.
On Wednesday, the Fed will publish the minutes from January 31 to February 2. 1 meeting. On Friday, investors will get the January reading of the PCE price index, the Fed’s favorite inflation gauge.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) shed 2.2%. The iShares Expanded Technology Software (IGV) Sector ETF fell 2%. The VanEck Vectors Semiconductor (SMH) ETF fell 3%. Nvidia shares are a major holding of SMH.
Reflecting stocks with more speculative histories, the ARK Innovation ETF (ARKK) fell 6.1% and ARK Genomics (ARKG) lost 6.25%. CRSP and Coinbase stocks are two big holdings in Ark Invest.
The SPDR S&P Metals & Mining ETF (XME) lost 2.6%. The US Global Jets ETF (JETS) fell 3%.
SPDR S&P Homebuilders ETF (XHB) sold 3.9% as guidance from Home Depot and rising yields hit housing-related stocks. TOL shares are a share of XHB.
The Energy Select SPDR ETF (XLE) and Financial Select SPDR ETF (XLF) each fell 2.1%. The Select Healthcare Sector (XLV) SPDR Fund decreased by 1.3%.
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Market recovery analysis
The stock market rally extended its pullback on Tuesday. The S&P 500, Nasdaq and Russell 2000 all fell sharply, dipping below their 21-day moving averages. The Dow Jones decisively fell below its 50-day line after holding that key level for a month.
As of now, the market pullback still looks normal on a weekly chart, but it’s a bit like saying a person’s blood pressure is “normal” but nearing the upper limit.
The S&P 500 and Nasdaq are falling near their 50 and 200 day lines, respectively. Breaking those levels would be worrisome.
Recent breakouts and buy signals have struggled, with the overall market fading since February 2 and especially over the last three sessions.
Rising Treasury yields and a recovering dollar are weighing on stock prices, especially growth stocks. With some short-term returns exceeding 5%, this is a pretty decent risk-free return against stocks.
More broadly, the market rally no longer ignores mixed (at best) earnings, guidance and economic data.
The good news is that investors no longer seem so complacent. The Cboe Volatility Index, or VIX, jumped to its highest level since early January, just before the January 6 tracking day.
Speculative growth names, which surged from bear market lows in January, may not continue to lead higher if their actual gains do not match.
Some mining stocks showed strength as prices for copper and other metals rallied. But will that last more than a day?
The most defensive names stand out again. Weston Lamb (LW) is hovering over a buy point while hershey (HSY) flirted with a leak on Tuesday. walmart (WMT) gave a buy signal on earnings despite the weak guidance.
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What to do now
Investors should get more defensive, perhaps reducing overall exposure. Even if that’s not your explicit goal, you should trim exposure by weeding out individual losers or taking at least partial profits on some winners.
The recent pullback could still be positive. Stocks that resisted the initial slight pullback in early February are now taking a breather or pulling back. A few good days could easily revive the fortunes of the market rally and trigger a series of buying opportunities. Therefore, investors should be ready to act by creating their watch lists.
But if conditions worsen, you’ll need to back off more substantially. So stay flexible and committed.
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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