Monday, June 5, 2023

Futures: What to do now after an ugly outside week

Dow Jones futures will open on Sunday evening along with S&P 500 futures and Nasdaq futures.


The stock market rally took a heavy toll this week in the wake of the Fed outlook and weak economic data that raised concerns the Federal Reserve will tip the economy toward recession. The Nasdaq and S&P 500 closed the week below their 50-day moving averages.

Megacap stocks in particular remain under pressure on major indices Apple (AAPL) and Tesla (TSLA), with TSLA stock falling to fresh beer market lows. Amazon.Com (AMZN) and Google parent Alphabet (GOOGL) isn’t too far from its bottom. Microsoft didn’t lose much for the week but retreated from the 200-day line. NVIDIA (NVDA), which was part of a chip rebound to the upside, retraced below key support.

But megacaps aren’t hiding underlying strengths. Stocks that had shown buy signals in recent days and weeks turned south. Leading sectors also suffered.

to save (podcast), commercial metals (CMC), elf beauty (ELF), Peabody Energy (BTU) and Dow Jones Giant Kamla (CAT) are in relatively good condition. However, nothing is actionable as of now.

Investors should be wary of making any purchases in the current market, but focus on reducing exposure and building a watchlist.

The video embedded in this article provides an in-depth review of market action analyzing Insulate, Elf Beauty, and Cat stocks.

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 stock market session.

Join IBD experts as they analyze actionable stocks in Stock Market Rally on IBD Live

stock market rally

The stock market rallied on Tuesday morning, but then sold off sharply, ending the week with sharp losses.

The Dow Jones Industrial Average fell 1.7% in last week’s stock market trading. The S&P 500 index dropped 2.1%. The Nasdaq Composite slid 2.7%. The small-cap Russell 2000 gave up 2.4%.

The 10-year Treasury yield fell 9 basis points to 3.48%. Despite the dovish Fed talk, markets expect a quarter-digit hike in February and March, but with a growing likelihood that there will be no move in March.

US crude oil futures rose nearly 5% to $74.29 a barrel last week.

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Among growth ETFs, the iShares Extended Tech-Software Sector ETF (IGV) erased large early gains to end the week up 0.5% with MSFT stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) staged its own outsized, bearish reversal week, declining 2.9%. Nvidia stocks a top SMH component.

Reflecting the over-speculative story stock, the ARK Innovations ETF (ARKK) skidded 4% last week, hitting a five-year low. The ARK Genomics ETF (ARKG) dropped 0.4%. Tesla stock remains a major holding in Arc Invest’s ETF.

The SPDR S&P Metals & Mining ETF (XME) sank 2.6% last week. The Global X US Infrastructure Development ETF (PAVE) declined 2.6%. The US Global Jets ETF (JETS) dropped 3.6%. The SPDR S&P Homebuilders ETF (XHB) rose 0.4%, but closed near weekly lows. The Energy Select SPDR ETF (XLE) gave up 2% and the Financials Select SPDR ETF (XLF) gave up 2.5%. The Health Care Select Sector SPDR Fund (XLV) shed 1.8% on Tuesday after hitting near record highs.

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Megacap Stocks: From Mediocrity to Meltdown

Dow Jones tech titan Apple stock closed at 134.51, up 5.4% for the week. AAPL broke the low of October-November, with the next low of 129.04 in the June bear market. Fellow Dow component Microsoft fell 0.3% to 244.69, but moved into a 200-day line after retreating from 263.92 on Tuesday morning. Amazon stock fell just 1.4% to 87.66, but closed closer to the Nov. 9 bear market low of 85.87, down from a weekly high of 96.25. Google stock fell 2.8%, down from Tuesday’s high. Nvidia moved above its 50-day line at the start of the week, but ended down 2.5%.

Tesla stock fell as much as 16.1% to 150.23, its lowest since November 2020. This was the worst weekly decline since the Covid crash in March 2020. on shares.

Tesla will build a new auto plant in northeastern Mexico, Bloomberg reported Friday night, with an announcement likely in the coming days. It is unclear what vehicles the factory may produce. A Mexico plant would offer relatively lower costs than Tesla’s Fremont, Austin and Berlin factories, while still being close to the US

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Market Rally Analysis

In a few days, the stock market rally suddenly shifted from rising above a trading range to falling below. The weekly loss percentage on the major indices was much higher, but the losses were far greater.

Soon after Tuesday’s open, all major indexes hit rallying highs on a steady inflation report, with the S&P 500 above its 200-day line and the Dow Jones back to its best level in nearly eight months. But the gains in the index were capped as the S&P 500 closed below its 200-day low. On Wednesday, major indices reversed lower as the Federal Reserve and Fed chief Jerome Powell signaled several more rate hikes ahead.

Selling intensified on Thursday amid weak economic data that allayed 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. All fell to their worst levels in more than a month, undermining weeks of sideways trading.

On Friday, the S&P 500 fell below its 50-day line. Dow is almost there.

It was a big, negative outlier week for all the major indices, with higher and lower ranges crossing each of the previous four weeks.

With few exceptions, major stocks declined. Industrial, solar, medical, travel and various chip and networking names are all coming under slight to intense pressure.

Overall, megacap stocks are a clear laggard. Tesla shares continue to slide to a two-year low. Amazon stock is trading above bear market bottoms while Google is headed in that direction. AAPL stock fell to its lowest level in nearly six months, with bears taking a lower view.

Microsoft stock and Nvidia may not be laggards, but they aren’t frontrunners. Both are trading below their 200-day lines.

Perhaps this uptrend is a bear market rally that has run its course, with the index headed back toward its October lows. Perhaps the S&P 500 will rebound sharply or remain rangebound for an extended period of time.

The only thing that is clear is that the market is not working properly right now.

Tim the market with IBD’s ETF market strategy

What do I do now

Investors should reduce risk due to deteriorating overall market and performance of most individual stocks.

While under pressure, it is still a market rally. A few good days may add confidence to the bullish trend and bring more stocks back into the buy zones. Of course, even in that scenario, investors should be wary of new purchases, given the pattern pulling back the rally and erasing solid gains.

So keep at it. Keep working on the watchlist. Focus on stocks that hold key moving averages and support levels and generally show strong relative strength, such as Caterpillar, Insulate, and ELF stocks.

Read The Big Picture every day to keep up with market direction and the leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and much more.

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