Stock Market Rally Suffers Bad Week In The Outdoors; This is what you should do now
Dow Jones futures will open on Sunday night, along with S&P 500 futures and Nasdaq futures.
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The stock market rally was badly damaged this week on the back of a hawkish outlook from the Fed and weak economic data that raised concerns that the Federal Reserve would push the economy into a recession. The Nasdaq and S&P 500 indices closed the week below their 50-day moving averages.
Mega-cap stocks remain a drag on major indices, especially Apple (AAPL) Y tesla (TSLA), with shares of TSLA falling to new bear market lows. amazon.com (AMZN) and Google main Alphabet (Google) are not too far from their minima. Microsoft didn’t lose much during the week, but it did pull back from the 200-day line. nvidia (NVDA), which had been part of a chip bounce, reversed lower, again below key support.
But megacaps don’t hide underlying strength. Most of the stocks that had shown buy signals in recent days and weeks turned south. The leading sectors also suffered.
Isolate (PODCAST), Commercial Metals (CMC), elf beauty (ELF), Peabody Energy (BTU) and the giant Dow Jones Caterpillar (CAT) hold up relatively well. However, neither are actionable at this time.
Investors should be careful when making any purchases in today’s market, but should focus on trimming exposure and building watch lists.
The video embedded in this article reviewed 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 6 p.m. ET on Sunday, along with futures for the S&P 500 and Nasdaq 100.
Remember that overnight action in dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock Exchange session.
Join IBD experts as they discuss actionable actions in the stock market rally on IBD Live
stock rally
The stock market rally spiked Tuesday morning but then sold off hard, ending the week with heavy losses.
The Dow Jones Industrial Average fell 1.7% in the past week stock trading. The S&P 500 index lost 2.1%. The Nasdaq Composite plunged 2.7%. The small-cap Russell 2000 shed 2.4%.
The 10-year Treasury yield fell 9 basis points to 3.48%. Despite the Fed’s hawkish policy, markets expect a quarter point rise in February and March, but with an increasing probability of no move in March.
US crude oil futures rose nearly 5% to $74.29 a barrel last week.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) erased large early gains to end the week down 0.5%, with MSFT shares a major holding. The VanEck Vector Semiconductor ETF (HMS) staged its own downward reversal week, losing 2.9%. Nvidia stock is a top component of SMH.
Mirroring more speculative historical stocks, the ARK Innovation ETF (ARKK) skidded 4% last week, just above a five-year low. ARK Genomics ETF (ARKG) submerged 0.4%. Tesla stock remains a major holding in Ark Invest ETFs.
SPDR S&P Metals and Mining ETF (XME) sank 2.6% last week. The Global X US Infrastructure Development ETF (TO PAVE) lost 2.6%. US Global Jets ETF (JETS) decreased by 3.6%. SPDR S&P Home Builders ETF (XHB) rose 0.4%, but closed near weekly lows. The Energy Select SPDR ETF (XLE) rebounded 2% and the Financial Select SPDR ETF (Four. Five) yielded 2.5%. The SPDR Select Healthcare Sector Fund (XLV) lost 1.8% after nearing all-time highs on Tuesday.
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Mega-cap stocks: from mediocre to slumps
Shares of Apple, the Dow Jones tech titan, sold off 5.4% over the week at 134.51. AAPL undermined the Oct-Nov lows, with the June bear market low of 129.04 to follow. Microsoft, the Dow’s fellow component, fell 0.3% to 244.69, but after pulling back from 263.92 on Tuesday morning when it hit the 200-day line. Amazon shares fell just 1.4% to 87.66, but plunged from weekly highs of 96.25 to close near the November 9 bear market low of 85.87. Google shares fell 2.8%, reversing lower from Tuesday’s highs. Nvidia moved above its 50-day line earlier in the week, but ended up falling 2.5%.
Tesla shares were the big losers, falling 16.1% to 150.23, the lowest level since November 2020. It was the worst weekly drop since the Covid crash in March 2020. Concerns about demand for China, Elon Musk’s latest TSLA stock sales and Musk’s Twitter focus are weighing on stocks
Tesla will build a new auto plant in northeastern Mexico, Bloomberg reported late Friday, with an announcement likely in the coming days. It is not clear which vehicles the factory can produce. A plant in Mexico would offer relatively lower costs compared to Tesla’s Fremont, Austin and Berlin factories, though it would still be close to the US.
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Market recovery analysis
In just a few days, the stock market rally abruptly went from moving above a trading range to falling below. The weekly percentage losses in the major indices were large, but the damage was far worse.
Shortly after the open on Tuesday, all the major indices hit recovery highs on a dovish inflation report, with the S&P 500 back above its 200-day line and the Dow Jones at its best levels in nearly eight months. But the indices pared gains and the S&P 500 closed below 200 days. On Wednesday, key indices reversed lower as the Federal Reserve and Fed chief Jerome Powell signaled several more rate hikes ahead.
On Thursday, the selling intensified amid weak economic data that stoked recession fears. 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 sank 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. The Dow is almost there.
It was a big negative external week for all the major indices, with the highs and lows breaking the range of the previous four weeks.
Major stocks have been hit, with few exceptions. Industries, solar energy, medicine, travel, and various chip and network names are under moderate to intense pressure.
Megacap shares continue to clearly lag overall. 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 the lowest level in nearly six months, with lower lows in sight.
Microsoft and Nvidia stocks may not be lagging, but they’re not leading either. Both are below their 200-day lines.
Perhaps this uptrend is a bear market rally that has come to an end, with indices heading towards their October lows. Perhaps the S&P 500 will recover quickly or remain range bound for an extended period.
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 exposure due to the general market deterioration 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 send more stocks back into buy areas. Of course, even in that scenario, investors should be wary of new buying, given the rally’s pattern of pulling back and erasing solid gains.
So stay engaged. Keep working on the watch lists. Focus on stocks that have key moving averages and support levels and generally show strong relative strength, such as Caterpillar, Insulet, and ELF stocks.
Read The panorama daily 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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