Dow Jones Dives, Market Rally Attempt Reeling As AMD, Tesla, On Semi Plunge; What To Do Now

Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.




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A fresh stock market rally attempt was launched last week, with big early gains for the Dow Jones and other major indices. But as hopes of a Fed pivot faded again, Treasury yields rallied and stocks tumbled from resistance. Along with warnings from modern micro devices (AMD) and CVS Health (CVS), which weighed heavily on its shares towards the end of the week, the major indices erased most of their gains.

While the market rally attempt is not over, the Dow Jones, S&P 500 and Nasdaq are near bear market lows. Investors should be extremely cautious in the current environment.

crown stick, Neurocrine Life Sciences (NBIX) and Eli Lilli (LLY) trade directly around buy points. NBIX stock and Apex Pharma (VRTX) are on the IBD Leaderboard.

Tesla (TSLA), Enphase Energy (ENPH) and About semiconductors (ON), three stocks on the verge of buying points suffered large sell-offs. TSLA shares sold off Monday on disappointing deliveries and then continued to slide. Enphase stock briefly showed an aggressive buy signal on Tuesday and then abruptly plummeted on Wednesday. ON stock closed above a trendline entry on Thursday, then dipped on Friday as AMD triggered a chip sell-off.

Megacaps don’t help. Microsoft stock, parent company of Google alphabet (GOOGL) and Amazon.com (AMZN), all of which were just below their 21-day moving average on Thursday, fell sharply on Friday, back towards bear markets or short-term lows. Apple (AAPL), which never made its falling 21 days, slipped towards near-term lows.

Microsoft (MSFT) and Google shares are long-term leaders on IBD. ON camp is on the IBD 50. Onsemi, Apex Pharma (VRTX) and ENPH stocks are on the IBD Big Cap 20. Vertex was the IBD stock of the day on Friday.

Dow Jones futures today

Dow Jones futures open at 6:00 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.


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stock market rally

A stock market rally attempt got off to a strong start but tumbled back near the bear market lows by the end of the week.

The Dow Jones Industrial Average rose 2% in trading last week. The S&P 500 index rose 1.5%. The Nasdaq Composite rose 0.7% after falling 3.8% on Friday. Small-cap Russell 2000 gained 2.2%.

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Apple shares rose 1.4% on the week but fell 3.7% on Friday. Microsoft was up 0.6% weekly as AMD’s PC demand warning sent Mr. Softy slipping 5.1% on Friday. Shares of Google and Amazon rose 3.2% and 1.4% respectively, also posting solid weekly gains on Friday.

The 10-year government bond yield rose 8 basis points to 3.88%, up for the 10th straight week. That’s after falling to 3.56% on the intraday Tuesday and testing its 21-day moving average. The 10-year Treasury yield is nearing 12-year highs of nearly 4% reached in late September.

The US dollar, which had fallen sharply at one point, rallied for a modest weekly gain.

US crude futures rose 16.5% to $92.64 a barrel, rising every five days. The OPEC+ production quota cut by 2 million barrels per day fueled gains. Meanwhile, US shale operators remain cautious about ramping up drilling.


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ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) is up 1.7% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) is up 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) was up 2.6% with MSFT shares being a massive holding. The VanEck Vectors Semiconductor ETF (SMH) rose 1.9% but sold off sharply on Friday on AMD’s warning and an extended US ban on chip technology exports to China. AMD stock is a big SMH holding, with On Semiconductor being a notable component.

Mirroring more of a speculative story stock, ARK Innovation ETF (ARKK) fell 0.6% and ARK Genomics ETF (ARKG) 0.15% last week, after both selling off more than 6% on Friday. Tesla stock remains a key position in Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF (XME) is up 7.3% last week. The Global X US Infrastructure Development ETF (PAVE) is up 3.4%. The US Global Jets ETF (JETS) is up 3.7%. The SPDR S&P Homebuilders ETF (XHB) is up 4.5%. The Energy Select SPDR ETF (XLE) is up 13.6% and the Financial Select SPDR ETF (XLF) is up 1.9%. Health Care Select Sector SPDR Fund (XLV) was up 1.25% with LLY shares being a big holding.


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Tesla stock

Shares fell 16% last week to 223.07 after record third-quarter deliveries from Tesla fell short of expectations amid demand concerns in China. Elon Musk signaled that he would go ahead with that Twitter (TWTR) to take over, reviving fears that he will sell more TSLA stock to fund the deal. Musk, who announced the start of Tesla Semi production, couldn’t give a boost on Friday. Shares are still above the late May low of 206.84, but not by much.

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Analysis of the market rally

The stock market events of the past week were almost textbook. Major indices rallied sharply Monday through Tuesday to bear market lows from severely oversold conditions. But an attempt at a stock market rally quickly met resistance at the 21-day moving average – while government bond yields and the dollar rallied. Selling intensified on Friday with the strong jobs report pushing yields and the dollar even higher.

What now? The stock market rally attempt is still in force until the major indices break their recent lows. But the Dow, S&P 500 and Nasdaq are not far behind.

A subsequent day could always come to confirm the market’s uptrend. That would be a positive sign. Investors should remain cautious, especially if indices stage an FTD below their 21-day mark. Also, a follow-through ahead of Thursday’s CPI carries additional risks.

New Bear Market Leg?

On the downside, there is a high risk that the bear market will break out deeper for further downside.

The market rallied earlier in the week amid hopes that the US Federal Reserve would slow rate hikes, perhaps in part due to tensions overseas. Falling job vacancies and Australia’s modest rate hike supported this fall. But Fed officials continue to insist they are not flinching while Friday’s jobs report was far too hot. Finally, the already high odds of a fourth straight rate hike of 75 basis points in November have increased over the past week. Markets are on the verge of locking in at least 50 basis points in December with a small but rising chance of 75 basis points.

Adding to the Federal Reserve and recession concerns, the earnings season could be a minefield. Warnings from AMD and CVS follow several other high-profile pre-announcements, results of which will begin next week. Even after a long bear market and clearly difficult business conditions, markets are still pricing in no bad news, with AMD shares and CVS falling more than 10% on Friday.

key sectors

Energy stocks appear strong as crude oil prices rise. However, many appear to have been extended following major ramp-ups.

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Meanwhile, the rise in oil prices could be bad news for the broader market. Higher energy costs, particularly gas prices, will complicate the Federal Reserve’s task of containing inflation. Gas prices had already recovered significantly, particularly in California, due to various refinery issues.

Some biotech and drug names are still doing well, somewhat insulated from economic concerns. But can they make big strides as the broader market heads for new lows?

Meanwhile, some tech and medical device names that had signaled buy signals over the past few days were big losers on Friday. Some held up reasonably well while others staged large sell-offs including ENPH stock and On Semiconductor. Tesla stock, which was plausibly close to an entry point just a week ago, dived towards the 2022 lows.

Apple stocks, Microsoft, and other tech titans aren’t leading the downside, but they’re certainly not bolstering the major indices.


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What now

The case for being all or entirely cash remained strong even at weekly highs and is even stronger now. Market rally attempt staggers. Indices could soon fall below bear market lows.

If you’ve bought some new positions recently – apart from the energy sector and select medical devices – you may have had to downsize or exit them already. Even if you only take pilot positions, don’t let the casualties increase. If you have profits, you might want to lock in some of them given the general market conditions.

Keep working on your watchlists and stay engaged. The market rally attempt could yet come to life, which would likely trigger buy signals for a large number of stocks. So focus on stocks that are building up. But also keep a broader list of strong stocks that show relative strength even when their charts need repairs.

Read The Big Picture every day to keep up to date with 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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