Dow Jones futures were stable overnight, along with S&P 500 futures and Nasdaq futures, with the August jobs report on tap. The stock rally sold again on Thursday, but recovered mixed to close.
Despite the so-so close, there was more damage across key sectors and stocks amid a slew of negative news.
A US ban on the sale to China of certain advanced chips from Nvidia (NVDA) and AMD (AMD) criticized the semiconductor industry. And several huge sell-outs from struggling software makers crushed the other big tech space. A Chinese lockdown of 21 million people due to Covid cases also weighed on stocks, prompting sell-offs of crude oil, copper and base metals. Meanwhile, government bond yields and the US dollar rose on strong labor market data ahead of the August jobs report.
More leading stocks — like Celsius Holdings (CELH) and Enphase Energy (ENPH) – are under pressure, although they haven’t cracked yet. Some stocks that have built up over the past few weeks have broken significant support, such as: Apple (AAPL), Arista Networks (ANET) and, to some extent, Tesla (TSLA).
Investors should have minimal exposure in the current market environment.
Economists expect Friday’s jobs report in August to show nonfarm payrolls up a solid 293,000 after the hot 528,000 in July. Economists see unemployment at a half-century low of 3.5%.
Labor market participation will be crucial. A sustained uptick in the workforce would be an almost magical elixir for the economy, easing pressure on the Federal Reserve to be so aggressive with rate hikes.
But participation has fallen in recent months, leaving no slack in the labor market.
The jobs report follows this week’s data showing first-time jobless claims have fallen to a two-month low and July job openings well above expectations.
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Dow Jones Futures Today
Dow Jones futures moved lower relative to fair value. S&P 500 futures rose higher and Nasdaq 100 futures rose 0.1%.
late Thursday, broadcom (AVGO) and Lululemon Athletica (LULU) reported strong gains and elevated outlook. AVGO shares and Lululemon bounced overnight. Neither is nearly doable, but it’s positive action for the market.
The jobs report will be out at 8:30 a.m. ET, which is sure to lead to big moves in Dow futures, Treasury yields and more.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally started lower on Thursday and continued to weaken before rebounding towards the end of the session to finish modestly mixed.
The Dow Jones Industrial Average rose 0.5% in Thursday’s stock market trading. The S&P 500 index climbed 0.3%. The Nasdaq composite fell 0.3%. The small-cap Russell 2000 fell 1.1%.
The price of crude oil in the US fell 3.3% to $86.61 a barrel.
The yield on 10-year Treasuries rose 13 basis points to 3.265%, the highest point since the end of June. The benchmark return, which rose from just below 2.53% on August 2, will begin approaching its 11-year high of 3.48% on June 14.
The VanEck Vectors Semiconductor ETF (SMH) lost 2.2%. Nvidia and AMD stocks are major SMH holding companies. NVDA stock fell 7.7%, reaching a two-year low. AMD, less exposed to the Chinese thresholds than Nvidia, fell 3%, still above the June low.
The SPDR S&P Metals & Mining ETF (XME) fell 3.8%. US Global Jets (JETS) fell 0.6%. The Energy Select SPDR ETF (XLE) lost 2.5% and the Financial Select SPDR ETF (XLF) rose 0.3%. The Health Care Select Sector SPDR Fund (XLV) rose 1.6%.
Due to stocks with more speculative stories, the ARK Innovation ETF (ARKK) fell 0.4% and ARK Genomics (ARKG) rose 0.65%. Tesla stocks are a major holding in Ark Invest’s ETFs.
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Market rally analysis
Well, the stock market rally was arguably ready for a rebound. Whether Thursday’s rebound from intraday lows to mixed legs will likely depend on Friday’s jobs report.
Intraday, the major indices suffered more damage.
The Nasdaq and S&P 500 failed to fully undercut their July 26 lows, which would have ended the “higher lows” trend and potentially trigger a shift to “market in correction.” But they are well below their 50-day moving average along with the Dow Jones.
The small-cap Russell 2000 and S&P MidCap 400 were below their 50-day limit on Thursday.
It was encouraging to see the market fighting back on Thursday afternoon in the face of so much headwind and headlines. But a market rally is measured in weeks, months, or years, not in two-hour increments.
Steel stocks, which gave buy signals a week ago, have collapsed. Chip names that looked so strong last week have crashed. Oil stocks are struggling.
Meanwhile, bottom fishing is rallying for the likes of Nvidia stocks, data dog (DDOG) and ARKK ended weeks ago.
The shares of solar, natural gas and pollution control are holding up relatively well, although most of these names are not making progress and are beginning to level off. Does Enphase have stock, Cheniere Energy (LNG) and Celsius phase shakeouts Thursday or will they be the next to crumble?
Albemarle (ALB) has reversed recent gains as lithium games sell out.
Many stocks that had been set up may require significant repair work, even if the general market picks up quickly. Apple shares and Tesla closed higher after undercutting their 50-day intraday lines. But both are looking up to their 200-day lines.
Vertex Pharmaceuticals (VRTX) shows positive action, while UnitedHealth (UNH) and centene (CNC) fighting for key support in old buying zones.
Time the Market with IBD .’s ETF Market Strategy
What to do now
This is not the time to buy stocks. If you have a few stocks with solid gains that hold up well, you can hold onto them, although partial gains are not a bad idea.
Investors can differ on when to sell a winning stock, but you have to draw a line in the sand somewhere.
This is not a good time to go short. The ideal time was when the market reached resistance on the 200-day line a few weeks ago. Short-term rallies can be fierce, albeit often short-lived. However, if the indices rise to their 50-day line and come to a halt, new short opportunities could emerge, perhaps even in Arista, Apple or Tesla stocks.
Work on your watchlists, long and short. Even if you don’t plan to go short, the exercise can help your overall market analysis and avoid being overly optimistic.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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