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 headlined earnings overnight. The ISM services index report will be key Friday morning.
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The stock market rally roared back Thursday from opening lows even as the 10-year Treasury yield powered decisively above 4%. A generally weak open turned into a solidly positive day as a Fed official backed a quarter-point move.
Salesforce.com (CRM) lifted the Dow. Tesla (TSLA) tumbled, weighing on the S&P 500 and Nasdaq.
A few stocks, including Salesforce, flashed buy signals. But the market uptrend is still under pressure with key tests ahead.
Broadcom (AVGO) and artificial intelligence plays C3.ai (AI) and Veritone (VERI) reported Thursday night.
More details about Tesla’s Mexico factory 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 edged down 0.1% vs. fair value. S&P 500 futures dipped 0.2% and Nasdaq 100 futures fell 0.3%.
The 10-year Treasury yield fell 2 basis points to 4.05%.
ISM will release its February nonmanufacturing index at 10 a.m. ET. The hot January ISM services index on Feb. 3, along with the jobs report, helped trigger the market rally’s retreat from highs.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Key Earnings
AVGO stock edged higher in extended trade after Broadcom earnings topped views, with Q2 revenue guidance also slightly higher. Broadcom stock edged up 0.9% to 598.65 in Thursday’s regular session, rebounding from the 21-day line after bouncing from the 50-day/10-week lines recently. AVGO stock has a 617.11 handle buy point on a long consolidation. But the chip and software maker is right at an early entry.
AI stock surged 18% in late trade, signaling a possible buy signal as C3.ai earnings results topped views and the company guided higher. AI stock rose 2.8% to 21.31 on Thursday after skidding below its 21-day line on Wednesday. A powerful rebound Friday could offer an aggressive entry for AI stock after breaking a trendline from its early February peak.
VERI stock rose nearly 8% overnight. Veritone earnings and revenue missed, but new bookings spiked 141%. Shares fell 1.2% to 6.36 on Thursday. Veritone stock cleared a bottoming base in late January and rose for a few days before tumbling back. VERI stock is now below the 50-day and 200-day lines.
Costco Wholesale (COST), Nordstrom (JWN) and Zscaler (ZS) also reported. COST stock fell 2.5% and Nordstrom tilted lower on mixed results. ZS stock 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 stock market trading. The S&P 500 index rallied 0.8%, with Salesforce and DXCM stock the top performers and Tesla the day’s worst. The Nasdaq composite advanced 0.7%. 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%, surging 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 Nov. 9. Blame lower-than-expected U.S. jobless claims and hotter-than-expected eurozone inflation. The 10-year yield isn’t 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, following several policymakers signaling support for or open to a half-point move. Bostic is a nonvoting member in 2023, however.
Markets solidly expect at least three more quarter-point Fed rate hikes, but with a decent chance of a 50-basis-point move in March or May. And some now slightly favor a fourth quarter-point hike at the July meeting. That would bring the fed funds range to 5.5%-5.75% from 4.5%-4.75% today.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 2.4%. CRM stock is a major IGV holding. The VanEck Vectors Semiconductor ETF (SMH) closed up 0.9% after tumbling Thursday morning.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 1.2% and ARK Genomics ETF (ARKG) edged up 0.4%. Tesla stock is a major holding across Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) climbed 0.4% and the Global X U.S. Infrastructure Development ETF (PAVE) advanced 1.2%. U.S. Global Jets ETF (JETS) ascended 0.45%. The SPDR S&P Homebuilders ETF (XHB) stepped up 0.7%. The Energy Select SPDR ETF (XLE) heated up 0.9% and the Financial Select SPDR ETF (XLF) fell 0.5%. The Health Care Select Sector SPDR Fund (XLV) gained 0.6%. DXCM stock is part of the XLV ETF.
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Tesla Stock
Tesla stock fell 5.85% to 190.90, moving below the 21-day line for the first time since Jan. 19. From a technical perspective, TSLA stock may simply be offering a shakeout. That could let the 50-day line catch up while the 200-day line drifts down to the Feb. 16 high of 217.65. A decisive move above those 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 on price cuts and the general market rebound, led by highly valued growth stocks.
But Tesla Investor Day on Wednesday was largely a nonevent, with no new EV design shown, let alone any idea a low-cost model might come into production.
(Tesla on Wednesday night did confirm plans to build an EV plant in northeastern Mexico. Construction is set to start in three months, a Mexican official said Thursday night, adding that the site will be twice as large as the Austin plant.)
Tesla orders did jump initially on the January global price cuts, as well as U.S. tax credits. But demand seems to be waning again, at least outside the Model Y in the U.S., with backlogs shrinking and more discounts appearing.
In fact, Tesla has just begun offering hefty new discounts in many European countries, including Germany, on many Model 3 and Y inventory vehicles. That follows outright Model 3 price cuts in Denmark a few days ago.
Finally, the growth-led market rally has cooled off in recent weeks.
Market Rally Analysis
The stock market rally looked 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, was moving toward its 50-day line. Even the Russell 2000 tested its 10-week line.
But even with Treasury yields soaring, the major indexes quickly improved, then turned broadly positive in the afternoon. That’s despite soaring Treasury yields and with megacap TSLA stock having a bad day.
The S&P 500 reclaimed its 50-day line while the Nasdaq moved back above its 200-day. The Dow Jones, buoyed by CRM stock’s 11.5% gain on earnings, led the advance, but it’s still near 2023 lows. The Russell 2000 closed slightly below its 21-day moving average, where it’s hit resistance for several days.
The Russell, Nasdaq and S&P 500 need to reclaim their 21-day lines decisively to offer reasonable evidence that the market rally is regaining momentum. The Feb. 2 highs would be the next big test above that.
Leading stocks, which have looked better than the indexes over the past month, showed strength as well Thursday. In addition to CRM stock, Okta (OKTA) gapped out of a base on earnings. DXCM stock flirted with buy signals. Builders FirstSource (BLDR) cleared a long consolidation. Many others extended moves from buy areas or moved into position.
But, if the indexes break down further, leaders will also crumble. It’s hard to see the major indexes holding up if Treasury yields keep marching 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 win Thursday. Several leading stocks flashed buy signals as the major indexes gained momentum.
But the market uptrend is still under pressure. The S&P 500 and Nasdaq are just one bad day from breaking below key levels.
Investors should be cautious about adding exposure. If the S&P 500 and Nasdaq move above their 21-day lines, you could gradually build up your portfolio again.
Right now, you want to rapidly reassess your watchlists.
With the market in such a tight trading area, a decisive move up or down could come soon. So be flexible and stay alert.
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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