Dow Jones Futures: Market Rally Hits Resistance As Inflation Report Looms; Tesla Skids As Cathie Wood Says This
Dow Jones futures were little changed Thursday night, along with S&P 500 futures and Nasdaq futures, with a crucial inflation report on tap Friday morning after Thursday’s growth-led sell-off. Costco Wholesale (COST), Oracle (ORCL) and Broadcom (AVGO) headlined key earnings after the close.
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The stock market rally attempt gave up some ground Thursday, with Tesla (TSLA), Lucid stock and other high-octane names leading the retreat.
Costco, Oracle and Broadcom reported earnings after the close.
The Dow Jones held steady with the S&P 500 retreating and Nasdaq selling off, with the latter undercutting its 21-day moving average. The rally attempt continues but needs a follow-through day to confirm the new uptrend. Was Thursday just a pause or a shakeout before a strong year-end rally, or is this the start of something bigger?
Ford Motor (F), Tempur Sealy (TPX), Saia (SAIA), Regeneron Pharmaceuticals (REGN), Pfizer (PFE), Arista Networks (ANET) and Google parent Alphabet (GOOGL) are seven stocks to watch. Several of these names, including Google, Regeneron and ANET stock, have flashed buy signals this week.
Earnings After Hours
Costco earnings beat on better-than-expected same-store sales. COST stock edged higher in extended trade. Shares have pulled back to the 21-day in recent days.
Lululemon Athletica (LULU) earnings topped as the yoga apparel retailer cited a strong start to holiday sales. But Lululemon gave so-so guidance for the current quarter as it forecast weak demand for its Mirror at-home fitness device. LULU stock reversed slightly lower overnight. Shares have trended lower in the past few weeks.
Oracle earnings and revenue topped views late Thursday, with the software giant also setting a $10 billion buyback. ORCL stock soared 10% in extended trade, signaling a move above its 50-day line. Oracle stock is in a base, but had been trending lower since late October.
Broadcom topped EPS views and gave strong guidance. The chip and software giant also announced a $10 billion stock buyback and 14% dividend hike. AVGO stock rose 7% overnight. Broadcom stock is trading near record highs.
Tesla Stock
Tesla stock tumbled 6.1% to 1,003.80, tumbling to just above its 50-day and slightly undercutting its 10-week line. ARK Invest’s Cathie Wood, a longtime cheerleader of Tesla’s self-driving aspirations, told CNBC that she now sees a „50-50 chance“ that the EV giant will succeed. Wood remains bullish on TSLA stock.
CEO Elon Musk sold $965 million worth of Tesla stock Thursday, according to SEC filings released after the close.
Lucid Group (LCID) announced plans for a $1.75 billion convertible debt offering. Lucid stock plunged 18% to 36.52, below its 50-day line. LCID stock is down 23% this week after big losses in the prior two weeks, following a huge run from late October to mid-November.
More broadly, high-octane growth stocks struggled Thursday. That includes a number of software names that were running back after big sell-offs in prior weeks.
Tesla, Google and Saia stock are on IBD Leaderboard. Google stock also is on SwingTrader and IBD Long-Term Leaders. Tesla, Google, Lululemon and ANET stock are on IBD 50. TPX Stock was the IBD Stock Of The Day.
The video embedded in this article reviews Thursday’s market action and analyzes Ford stock, Tempur Sealy and Arista Networks.
Inflation Report
The Labor Department will release the November consumer price index at 8:30 a.m. ET on Friday. Economists expect the CPI to rise 0.7% vs. October. Overall inflation is forecast to heat up to 6.8% from October’s 6.2%, already a 30-year high. The core CPI is seen rising 0.5%, with core inflation heating up to 4.9%.
The CPI inflation report comes ahead of the Federal Reserve’s policy meeting on Dec. 14-15. Fed chief Jerome Powell and some other policymakers have signaled that they’ll discuss speeding up the bond taper at the meeting. With the omicron Covid variant not seen as a major new threat, the Fed may feel it’s time to step up its inflation fight.
Dow Jones Futures Today
Dow Jones futures fell less than 0.1% vs. fair value. S&P 500 futures edged higher and Nasdaq 100 futures rose 0.1%.
The inflation report will certainly impact Dow Jones futures and Treasury yields before the open.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally held up reasonably well in the morning, but weakened as the session wore on, especially growth names.
The Dow Jones Industrial Average closed almost exactly flat in Thursday’s stock market trading. The S&P 500 index fell 0.7%. The Nasdaq composite slumped 1.7%. The small-cap Russell 2000 skidded 2.3%.
The 10-year Treasury yield slipped 2 basis points to 1.49%. Crude oil prices fell 2% to $70.94 on Thursday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 2.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 1.5%. The iShares Expanded Tech-Software Sector ETF (IGV) declined 2.3%. The VanEck Vectors Semiconductor ETF (SMH) sank 2.4%.
SPDR S&P Metals & Mining ETF (XME) fell just over 1% and Global X U.S. Infrastructure Development ETF (PAVE) declined 0.7%. U.S. Global Jets ETF (JETS) descended 1.2%. SPDR S&P Homebuilders ETF (XHB) edged down 0.4%. The Energy Select SPDR ETF (XLE) sank 0.8% and the Financial Select SPDR ETF (XLF) dipped 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 5.3% and ARK Genomics ETF (ARKG) 5.2%. Tesla remains the No. 1 holding across ARK Invest’s ETFs.
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Stocks To Watch
Ford stock has been consolidating since running up from a late October breakout, holding support around its 21-day line. Investors could use a move above a trend line as an early buy signal, with Wednesday’s high of 20.19 perhaps offering a specific entry. Ford stock could end up forming a base from the 20.79 peak. Shares dipped 1.2% to 19.57 on Thursday. The relative strength line has been holding near highs, reflecting Ford stock’s resilience.
TPX stock fell 2.1% to 44.78 on Thursday, back below its 50-day line and downward-sloping trend line. Investors could use Tuesday’s high of 46.70 as an aggressive entry for Tempur Sealy stock. TPX stock has an official double-bottom base buy point of 48.74, according to MarketSmith.
Saia stock gave up slim gains to dip 0.15% at 329.83, just above its 21-day line. The trucking firm’s strong move Tuesday above the 21-day line and breaking a trend line offered an early entry. Investors could still buy the stock here or perhaps above Tuesday’s intraday high. On a weekly chart, Saia stock has rebounded from just above the 10-week line. That pullback follows a strong move from a mid-October breakout.
REGN stock rose 1.8% to 665.72 on Thursday, moving above a 661.94 cup-with-handle buy point. The chart is not without its flaws, but Regeneron stock has strong fundamentals and institutional support.
Pfizer stock climbed 1.3% to 52.08, moving back above a 51.98 cup-base buy point. PFE stock also could be forming a high handle, shelf or other consolidation just above that base. The drug giant is set to pull back this week after seven straight weekly gains, many on above-average volume. Pfizer is benefiting from its coronavirus vaccine, with PFE stock also getting a lift from an experimental antiviral that has shown strong results vs. Covid. But Covid headlines can swing the stock significantly.
GOOGL stock dipped 0.4% to 2,952.77 on Thursday, but has rallied 4% so far this week. Google stock has rebounded above its 50-day line, broken a short trend line and regained an old buy point of 2,925.17. The RS line for GOOGL stock has been holding steady.
ANET stock gapped up on earnings in early November and then largely held those gains even as the market retreated. On Thursday, shares gained 2.5% to 128.66. Arista Networks stock flashed an aggressive entry Tuesday, as it broke a trend line and moved above its 21-day moving average. With Thursday’s gain, ANET stock seems a little extended from the early buy signal. But it’s on track to have a flat base after this week with a 134.24 buy point.
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Market Rally Analysis
The stock market rally attempt ran into its first real resistance on Thursday, especially growth and small-cap names. The Dow Jones didn’t budge while the S&P 500 held comfortably above its 21-day line. The Nasdaq broke below that level, though it’s still up for the week.
The Russell 2000 fell back below its 200-day line. While up for the week, the small-cap index reflects the still-weak market breadth in recent weeks.
Even though the Dow Jones was roughly flat, selling was broad-based. Tesla stock fell, reflecting weakness among EV names and story stocks generally.
Trucking firms are looking robust, with J.B. Hunt (JBHT), ArcBest (ARCB) and Old Dominion Freight Line (ODFL) among those joining Saia stock. A variety of medicals are looking strong, with CVS Health (CVS) and Edwards Lifesciences (EW) along those, along with Pfizer and REGN stock.
Housing-related stocks continue to shine, though many are getting extended.
Thursday’s growth-led retreat shouldn’t come as a surprise after several days of gains. What matters is what comes next. Will the market follow through and confirm the new rally attempt in the coming days, or will the major indexes fall back to new lows?
What To Do Now
Thursday’s action is a great example of why investors should be cautious about adding exposure during a new market rally attempt. Yes, a lot of stocks looked enticing with the major indexes rebounding, but they can fall back even faster. That’s especially true for volatile growth names such as Datadog (DDOG) or Tesla stock.
Far better to tiptoe into rally attempt, or avoid new buys entirely, until there’s a follow-through day. Take this time to build up your watchlists. There are a number of stocks and sectors that are looking promising, Make sure you cast a wide net, emphasizing relative strength.
Definitely stay engaged. When the market rally confirms a new rally, whether it’s Friday, next week or next year, you want to be ready to act. On the flip side, if the major indexes deteriorate, you want to cut losses quickly on this week’s new buys.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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