Dow Jones futures fell slightly overnight along with S&P 500 futures and Nasdaq futures as the market rally continued. Broadcom (AVGO) and hot AI play C3.ai overnight headlined earnings. The index report of the ISM services will be the focus on Friday morning.
The stock market rally roared back from opening lows on Thursday, even as 10-year Treasury yields surged well above 4%. A generally weak opening turned into a solid positive day as a Fed official supported a quarter-point move.
Salesforce. com (CRM) increased the Dow. Tesla (TSLA) plummeted and weighed on the S&P 500 and Nasdaq.
A few stocks, including Salesforce, flashed buy signals. But the market’s uptrend is still under pressure with major testing ahead.
Broadcom (AVGO) and artificial intelligence plays C3.ai (KI) and Veritone (VERI) reported Thursday evening.
More details about Tesla’s factory in Mexico came out overnight.
The video embedded in this article discussed Thursday’s market action and analyzed the CRM stock, Aehr test systems (AEHR) and Dexcom (DXCM).
Dow Jones Futures Today
Dow Jones futures fell 0.1% from fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%.
The 10-year Treasury yield fell 2 basis points to 4.05%.
ISM will release its February non-manufacturing index at 10am ET. The hot January ISM services index on Feb. 3 along with the jobs report helped pull the market rally back from highs.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
AVGO shares rose in extended trading after Broadcom revenue topped views, with Q2 revenue guidance also slightly higher. Broadcom shares rose 0.9% to 598.65 during Thursday’s regular session, recovering from the 21-day line after recently bouncing off 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 right about an early entry.
AI shares were up 18% in late trading, signaling a possible buy signal as C3.ai’s earnings results beat views and the company moved higher. AI shares rose 2.8% to 21.31 on Thursday, after falling below the 21-day line on Wednesday. A strong recovery on Friday could provide an aggressive entry for AI stocks after breaking a trendline from its peak in early February.
VERI stock rose nearly 8% overnight. Veritone revenue and revenue missed, but new bookings were up 141%. The stock fell 1.2% to 6.36 on Thursday. Veritone stock bottomed out in late January and rose for a few days before falling back. VERI stock is now below the 50-day and 200-day lines.
Costco wholesale (COST), Nordstrom (JWN) and Zscaler (ZS) also reported. COST shares fell 2.5% and Nordstrom tipped lower on mixed results. ZS shares plummeted 11.5% as invoices failed to impress. All three closed below their 200-day limit.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The Dow Jones Industrial Average rose 1.05% during Thursday trading. The S&P 500 index rose 0.8%, with Salesforce and DXCM being the best performers and Tesla the worst on the day. The Nasdaq composite was up 0.7%. The small-cap Russell 2000 rose 0.2%.
US crude oil prices rose 0.6% to $78.16 a barrel, up for the third consecutive session. Gasoline futures are up nearly 1%, up 14.5% so far this week.
The 10-year Treasury yield rose 8 basis points to 4.07% and closed above 4% for the first time since November 9. Blame lower-than-expected US unemployment claims and higher-than-expected Eurozone inflation. The 10-year yield is close to a 15-year high in October of 4.33%.
Rafael Bostic, president of the Atlanta Fed, said at the March meeting that he “resolutely” favors a quarter-point increase after several policymakers expressed support or were open to a half-point move. However, Bostic will be a non-voting member in 2023.
Markets are likely to expect at least three more quarter-point rate hikes from the Fed, but with a decent chance of a 50 basis point move in March or May. And some are now somewhat in favor of a fourth quarter-point increase at the July meeting. That would put the Fed Funds range at 5.5%-5.75%, from 4.5%-4.75% today.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) was up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) soared 2.4%. CRM shares are a major IGV holding company. The VanEck Vectors Semiconductor ETF (SMH) closed 0.9% higher Thursday morning after falling.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 1.2% and ARK Genomics ETF (ARKG) was up 0.4%. Tesla stock is a major stock in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) was up 0.4% and the Global X US Infrastructure Development ETF (PAVE) was up 1.2%. US Global Jets ETF (JETS) rose 0.45%. The SPDR S&P Homebuilders ETF (XHB) rose 0.7%. The Energy Select SPDR ETF (XLE) was up 0.9% and the Financial Select SPDR ETF (XLF) was down 0.5%. The Health Care Select Sector SPDR Fund (XLV) gained 0.6%. DXCM stocks are part of the XLV ETF.
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Tesla shares fell 5.85% to 190.90, falling below the 21-day line for the first time since Jan. 19. From a technical perspective, TSLA stock may just be offering a shakeout. That could overtake the 50-day line as the 200-day line descends to its February 16 high of 217.65. A decisive move above those levels would provide an aggressive entry.
But Tesla doubled from its Jan. 6 low of 101.81 on three factors: Tesla Investor Day buzz, renewed demand from price cuts, and the market’s general recovery, led by highly valued growth stocks.
But Wednesday’s Tesla Investor Day was largely a non-event, with no new EV design shown, let alone any idea that a low-cost model might enter production.
(Tesla confirmed plans Wednesday night to build an EV factory in northeastern Mexico. Construction will begin in three months, a Mexican official said Thursday night, adding that the site will be twice the size of the factory in austin.)
Tesla orders initially rose on the back of global price cuts in January, as well as U.S. tax cuts. But demand seems to be slowing down again, at least outside of the Model Y in the US, with backlogs narrowing and more discounts appearing.
In fact, Tesla has just started offering hefty new discounts in many European countries, including Germany, on many Model 3 and Y stock vehicles. That follows outright Model 3 price cuts in Denmark a few days ago.
Finally, the growth-led market rally has cooled in recent weeks.
Analysis of the market rally
The stock market rally appeared to be in real trouble during Thursday’s open, with the S&P 500 falling below its 200-day line. The Nasdaq composite, which fell below the 200-day line on Wednesday, moved toward the 50-day line. Even the Russell 2000 tested its 10-week line.
But even as government bond yields soared, major indices improved rapidly and turned broadly positive in the afternoon. That’s despite rising Treasury yields and with megacap TSLA stock having a bad day.
The S&P 500 retook its 50-day line while the Nasdaq rebounded above its 200-day line. The Dow Jones, buoyed by CRM stock’s 11.5% gain on earnings, led the advance, but it is still near the 2023 lows. The Russell 2000 closed slightly below its 21-day moving average , where he ran into resistance for several days.
The Russell, Nasdaq and S&P 500 need to resolutely regain their 21-day lines to provide reasonable evidence that the market rally is gaining momentum again. The February 2 highs would be the next big test up there.
Leading stocks, which have outperformed the indices over the past month, also showed strength on Thursday. In addition to CRM stock, Okay (OKTA) came from a revenue base. DXCM shares flirted with buy signals. Builders FirstSource (BLDR) ended a long consolidation. Many others extended moves from buying territories or moved into position.
But if the indices continue to collapse, leaders will also crumble. It is hard to imagine the major indices holding up as government bond yields continue to rise. Friday’s ISM services index and the market reaction to that report will be important.
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What to do now
The stock market rally won a much-needed victory on Thursday. Several leading stocks flashed 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 key levels.
Investors should be careful about adding exposure. If the S&P 500 and Nasdaq break above their 21-day lines, you could gradually rebuild your portfolio.
At this point, you want to quickly reassess your watchlists.
With the market in such a tight trading area, a decisive move up or down could be imminent. So be flexible and stay alert.
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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