by Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures as the market rally held. Broadcom (AVGO) and hot AI play C3.ai with the headlines overnight. The ISM service index report will be key on Friday morning.
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The stock market rally roared back Thursday from opening lows, even as the 10-year Treasury yield moved decisively above 4%. A generally weak opening turned into a solidly positive day as a Fed official backed a quarter-point move.
Salesforce.com (CRM) lifted the Dow. Tesla (TSLA) fell, weighing on the S&P 500 and Nasdaq.
A few stocks, including Salesforce, flashed buy signals. But the market recovery is still under pressure with important tests ahead.
Broadcom (AVGO) and artificial intelligence plays C3.ai (AI) and Veritone (VERI) reported on Thursday evening.
More details about Tesla’s factory in Mexico came out overnight.
The video embedded in this article reviewed Thursday’s market action and analyzed CRM stock, Aehr test systems (AEHR) and Dexcom (DXCM).
Dow Jones Futures today
Dow Jones futures were down 0.1% relative to fair value. S&P 500 futures fell 0.2% and Nasdaq 100 futures fell 0.3%.
The 10-year government yield fell 2 basis points to 4.05%.
The ISM will release its non-manufacturing index in February at 10 a.m. ET. The warm January ISM services index on February 3, along with the jobs report, helped trigger the market rally’s decline from highs.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
Key income
AVGO shares edged higher in extended trading after Broadcom earnings topped views, with second-quarter earnings guidance also slightly higher. Broadcom shares were up 0.9% at 598.65 in Thursday’s regular session, rebounding from the 21-day line after bouncing off the 50-day/10-week lines recently. The AVGO share has a buy point of 617.11 in a long consolidation. But the chip and software maker is early stage.
AI stock rose 18% in late trade, signaling a possible buy signal as C3.ai earnings results topped views and the company led higher. AI stock rose 2.8% to 21.31 on Thursday after slipping below its 21-day line on Wednesday. A sharp rebound on Friday could offer an aggressive entry for AI stock after breaking a trend line from the top in early February.
VERI shares rose nearly 8% overnight. Veritone revenue and earnings missed, but new orders increased 141%. The stock fell 1.2% to 6.36 on Thursday. Veritone stock made a bottom in late January and rose for a few days before falling back. VERI stock is now below the 50-day and 200-day lines.
Costco Wholesale (COST), Nordstrom (JWN) and Zscaler (ZS) also reported. COST shares fell 2.5% and Nordstrom edged lower on mixed results. ZS shares plunged 11.5% as billings failed to impress. All three closed below their 200-day lines.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The Dow Jones Industrial Average rose 1.05% in Thursday’s trading. The S&P 500 rose 0.8%, with Salesforce and DXCM the best performers and Tesla the worst for the day. The Nasdaq composite rose 0.7 percent. The small-cap Russell 2000 climbed 0.2%.
U.S. crude oil prices rose 0.6% to $78.16 a barrel, up for a third straight session. Gasoline futures rose nearly 1%, and are up 14.5% so far this week.
The 10-year Treasury yield jumped 8 basis points to 4.07%, closing above the 4% level for the first time since November 9. Blame lower-than-expected US unemployment claims and higher-than-expected inflation in the eurozone. The 10-year yield is not far from October’s 15-year high of 4.33%.
Atlanta Fed President Rafael Bostic said he “firmly” favors a quarter-point hike at the March meeting, after several policymakers signaled support for or openness to a half-point move. However, Bostic is a non-voting member in 2023.
Markets are solidly expecting at least three quarter point Fed rate hikes, but with a decent chance of a 50 basis point move in March or May. And some are now slightly in favor of an increase in the fourth quarter at the July meeting. That would bring the funds to 5.5%-5.75% from 4.5%-4.75% today.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 2.4%. The CRM share is a large IGV holding. The VanEck Vectors Semiconductor ETF ( SMH ) closed up 0.9% after falling Thursday morning.
ARK Innovation ETF ( ARKK ), reflecting more speculative history stocks, rose 1.2% and ARK Genomics ETF ( ARKG ) rose 0.4%. Tesla stock is a large holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) rose 0.4% and the Global X US Infrastructure Development ETF (PAVE) rose 1.2%. The US Global Jets ETF (JETS) rose 0.45%. The SPDR S&P Homebuilders ETF ( XHB ) rose 0.7%. The Energy Select SPDR ETF (XLE) rose 0.9% and the Financial Select SPDR ETF (XLF) fell 0.5%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.6%. The DXCM share is part of the XLV ETF.
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Tesla shares
Tesla shares fell 5.85% to 190.90, moving below the 21-day mark for the first time since January 19. From a technical perspective, TSLA stock could simply offer a shakeout. That could allow the 50-day line to catch up while the 200-day line drifts down to the February 16 high of 217.65. A decisive move above these levels would offer an aggressive entry.
But Tesla doubled from its Jan. 6 low of 101.81 on three factors: Tesla Investor Day buzz, revived demand for price cuts and the general market rally, led by highly valued growth stocks.
But Tesla Investor Day on Wednesday was largely a non-event, with no new EV design on display, let alone any idea whether a low-cost model might go into production.
(Tesla confirmed Wednesday night plans to build an electric car plant in northeastern Mexico. Construction is set to begin in three months, a Mexican official said Thursday night, adding that the site will be twice the size of the Austin plant. )
Tesla orders initially rose on the global price cuts in January, as well as US tax credits. But demand appears to be slowing again, at least outside of the Model Y in the US, with backlogs shrinking and more discounts popping up.
In fact, Tesla has just started offering big new discounts in many European countries, including Germany, on many Model 3 and Y cars. It follows a direct price cut on the Model 3 in Denmark a few days ago.
Finally, the growth-driven market recovery has cooled in recent weeks.
Market rally analysis
The stock rally appeared to be in real trouble at Thursday’s open, with the S&P 500 undercutting its 200-day line. The Nasdaq Composite, which fell below its 200-day line on Wednesday, moved toward its 50-day line. Even the Russell 2000 tested its 10-week line.
But even with rising government yields, the major indexes quickly improved, then turned mostly positive in the afternoon. That’s despite skyrocketing Treasury yields and megacap TSLA shares having a bad day.
The S&P 500 regained its 50-day line while the Nasdaq moved back above its 200-day. The Dow Jones, supported by CRM stock’s 11.5% gain on earnings, led the advance, but it remains near 2023 lows. The Russell 2000 closed slightly below its 21-day moving average, where it has held resistance for several days.
The Russell, Nasdaq and S&P 500 need to regain their 21-day lines determined to provide reasonable evidence that the market rally is regaining momentum. February 2nd would be the next big test of that.
Leading shares, which have looked better than the indices over the past month, also showed strength on Thursday. In addition to CRM inventory, Octa (OKTA) gapped from a base on earnings. DXCM stock flirted with buy signals. Builders FirstSource (BLDR) cleared a long consolidation. Many others extended moves from buying areas or moved into position.
But if the indices break down further, managers will also crumble. It is difficult to see the major indexes holding up if government yields continue to march higher. Friday’s ISM services index, and the market reaction to that report, will be important.
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What to do now
The stock market rally got a much-needed victory on Thursday. Several leading shares flashed buy signals as the major indexes gained momentum.
But the upswing in the market is still under pressure. The S&P 500 and Nasdaq are just one bad day away from breaking below key levels.
Investors should be careful about adding exposure. If the S&P 500 and Nasdaq move above their 21-day lines, you can gradually rebuild your portfolio.
Right now, you want to quickly reevaluate your watchlists.
With the market in such a tight trading range, a decisive move up or down could be coming soon. So be flexible and be alert.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.
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200-Day Average: Last Support Line?
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