Dow Jones Shows Resilience, Market Rally At Pivotal Point; Tesla, Enphase Fall

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. The attempt at stock market rally showed resilience on Wednesday. Major indices fell sharply on Wednesday morning as government bond yields and the dollar rallied, but equity indices rallied to end only marginally lower.




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The market rally hasn’t proven itself yet, although it could be soon. Patience – and cash – remain key.

Tesla (TSLA) continued to slide, with Elon Musk-Twitter (TWTR) takeover saga not quite over yet. Enphase Energy (ENPH) plunged, breaking below recent lows on a bad day for solar games.

Medicinal names have held up well, including Apex Pharma (VRTX), Zigna (C.I.), shock wave medicine (SWAV), Sarepta Therapeutics (SRPT), cardinal health (CAH), Option care health (OPCH) and Neurocrine Life Sciences (NBIX). In the meantime, About semiconductors (ON), impinj (PI) and Arista Networks (ANET) are tech names making their mark.

Oil inventories were strong and OPEC+ agreed to a sizeable production cut at Wednesday’s meeting. Exxon Mobile (XOM) also signaled strong third quarter results. XOM stock flashed a buy signal on Wednesday.

VRTX stock and Neurocrine Biosciences are on the IBD best list, while PCTY stock and Shockwave are on the watch list. SWAV stocks, Vertex, Paylocity, Sarepta and Onsemi are on the IBD 50. Arista Networks, Vertex, On Semiconductor and ENPH stocks are on the IBD Big Cap 20. On Semi Wednesday was the IBD stock of the day with Paylocity, Enphase and ANET stocks are also current picks.

Dow Jones futures today

Dow Jones futures were flat against fair value. S&P 500 futures and Nasdaq 100 futures were little changed.

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 Wednesday

An attempt at the stock market rally tumbled Wednesday morning, but major indices swerved far from session lows and briefly turned positive before fading to modest losses.

The Dow Jones Industrial Average fell 0.1% in trading on Wednesday. The S&P 500 index fell 0.2%. The Nasdaq Composite declined 0.25%. Small-cap Russell 2000 down 0.6%

US crude prices rose 1.4% to $87.76 a barrel, extending strong weekly gains. OPEC+ agreed to cut production quotas by 2 million barrels, at the high end of expectations heading into Wednesday’s meeting.

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The 10-year Treasury yield rose 14 basis points to 3.76%, erasing most of this week’s losses.

ETFs

Among the best ETFs, Innovator IBD 50 ETF (FFTY) fell 1%, while Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) is up 0.45%. The VanEck Vectors Semiconductor ETF (SMH) is up 1%.

The SPDR S&P Metals & Mining ETF (XME) is down 0.3%. The Energy Select SPDR ETF (XLE) is up 2.1%, with XOM shares being a massive holding. The Health Care Select Sector SPDR Fund (XLV) edged up 0.3%.

Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was down 1.8% and ARK Genomics ETF (ARKG) was down 1.9%. Tesla stock remains a top position among Ark Invest’s ETFs.


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Exxon stock

XOM shares rose 4% to 99.12, extending the move above the 50-day moving average, which is now up 14% this week. Exxon stock broke a downward-sloping trendline in a four-month consolidation. Investors could use 101.66 as another early entry with 105.67 as the official buy point. The relative strength line for XOM stock is already at a new high.

Soaring energy prices are fueling the recent rebound in Exxon stock. Exxon reported strong third-quarter results late Tuesday.

hold shares

VRTX stock, Neurocrine Bio, and Option Care Health are all near buy points and arguably actionable now. SWAV stocks, Cigna and Sarepta are all close to being actionable from trend line entries. Ditto for ANET stock and On Semiconductor, which signaled early buy signals, albeit on small volume. PI stock is close.

Enphase stock

Enphase stock plunged 9.25% to 261.60, breaking well below recent lows in the largest volume since the July 27 earnings gap. ENPH stock, which peeked above its 50-day moving average on Tuesday and signaled a buy signal, is now well below that key level, according to MarketSmith analysis.

first sun (FSLR), which broke above a brief consolidation on Tuesday, plunged 5.9% on Wednesday, while several other solar stocks sold off.

Tesla stock

Tesla shares fell 3.5% to 240.81 but pulled off their intraday low of 233.27. For the week, TSLA shares are down 9.2%, extending significant losses since the Sept. 21 drop. Shares are still suffering from weak third-quarter deliveries on Sunday, reflecting weak demand in China.

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Meanwhile, CEO Elon Musk’s stated intent to advance the $44 billion Twitter deal raises concerns that he will sell more TSLA stock to help raise funds.

The Musk-Twitter takeover saga isn’t quite over yet. While Musk says he’s ready to go ahead with the original $54.20-per-share deal, Twitter won’t just take his word for it and agree to drop the lawsuit. Both sides are in talks with the aim of agreeing on terms that offer genuine assurances.

Musk could own Twitter in just a few days.

But for now, the takeover process between Musk and Twitter is set to begin on October 17. Twitter’s lawyers are scheduled to depose Musk starting Thursday, although it’s an open question whether he will actually show up.

Twitter shares fell 1.35% to 51.30. That was after a 22% surge to 52 on Tuesday after Musk pulled back.


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Analysis of the market rally

Attempting a stock market rally is at a crucial juncture. Is this the start of a major uptrend or just a short-lived rebound from oversold conditions?

Wednesday’s action didn’t answer those questions, but it was encouraging.

The market made big gains on Monday and Tuesday. On Wednesday, the bulls showed they wouldn’t give up at the first sign of trouble.

The Dow Jones, S&P 500 and Nasdaq all fell near their 21-day moving averages at the open and soon gave up most of Tuesday’s gains. But they steadily cut losses and turned positive before going back into the red at the last minute.

The Dow Jones and S&P 500 briefly peeked above their 21-day moving averages while the Nasdaq Composite came close.

The Russell 2000 managed to hold its 21-day period, which is becoming a key near-term level for all indices.

The losers easily outperformed the winners on Wednesday as market breadth was weaker than the indices’ close suggests.

Meanwhile, a declining 10-year yield and falling greenback were big catalysts for Monday through Tuesday’s market rally. So it’s no surprise that shares sold off Wednesday morning as US Treasury and dollar yields tumbled.

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Major indices pared losses even as yields stayed near session highs. That can happen on any given day. But over time, stocks are unlikely to rise significantly, or even hold up, as government bond yields rise.

key sectors

Oil, gas and coal stocks like Exxon are rising on the back of rising energy prices.

Medical names like Vertex and Option Care Health held up relatively well, even at the market’s low for the day. So do Arista, PCTY and ON. Some farming and metal games are developing.

A number of leading stocks fell sharply, at least for the day. Some still have decent charts while others like ENPH stock have taken significant damage.

Investors can now look for a day ahead to confirm the new rally. Friday’s job report could be the catalyst for a strong market rally or sell-off.

A following day would be a positive signal, but not a guarantee. For now, it’s still an attempt at a stock market rally within a sharp bear market.


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What now

Investors must be patient. A market rally attempt has produced some strong gains this week, with a number of leading stocks triggering or approaching buy points. But it has done nothing to signal that it has staying power.

Going all in cash or with minimal risk remains a solid strategy. If this turns out to be a significant market rally, there will be plenty of opportunity after a follow-through day.

Investors who have tiptoed into some promising names this week should be prepared to exit if trades turn against them.

All in all, a confirmed stock market rally could happen at any time. A number of stocks are showing strength and would likely be actionable should the market continue to strengthen. So investors need to stay engaged and work on their watch lists.

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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