Dow Jones futures were up slightly after the close, along with S&P 500 futures and Nasdaq futures. Palo Alto Networks and Coinbase reported late Tuesday, Wingstop and chip giant Nvidia are due Wednesday.
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The stock market rally continued to lose ground, with the Dow Jones falling below a key level while the S&P 500 and Nasdaq retreated towards key support. The 10-year Treasury yield continued to rush higher, getting closer to 4% on the back of stronger-than-expected and disappointing economic data home depot (HD) Instructions.
Investors should adopt a more defensive stance, at least in the short term.
Palo Alto Networks (PANW) and Great brothers (TOL) reported results late Tuesday. So did three major Ark Invest holdings: Exact Sciences (EXAS), Crispr therapeutics (CRSP) and coin base (COIN).
wing stop (WING), TJX Cos. (TJX) and baidu (BIDU) report early Wednesday. Wingstop slipped back below a buy point on Tuesday, while TJX stock is not too far from an early entry within a flat base.
NVIDIA (NVDA) gains on the horizon Wednesday night, a key report for the chip sector and the broader market rally.
WING shares are on the IBD Leaderboard and the IBD 50.
The video embedded in the article provides an overview and analysis of Tuesday’s sell-off autoliv (ALV), Lamb Weston and Wingstop.
Dow Jones futures today
Dow Jones futures rose 0.2% versus fair value. S&P 500 futures were up 0.25% and Nasdaq 100 futures were up 0.4%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
key income
PANW stock rose in late trade after Palo Alto’s earnings beat expectations for the second quarter but guidance was mixed. Palo Alto shares fell 1.4% to 166.89 on Tuesday, retreating towards the 200-day moving average. A decisive move above last week’s high 177.60 would clear resistance several months ago and provide entry.
TOL stock was up slightly after the close as first-quarter results beat expectations. Toll Brothers shares were down 2.6% on Tuesday at 55.70, closer to the 50-day and 10-week moving average. After nearly doubling from last October to February 2nd, shares have fallen as government bond yields have risen again. But TOL stock has a buy point of 62.71 cups with handle.
EXAS stock fell slightly in overnight trading after Exact Sciences topped Q4 views but provided in-line guidance for 2023. Exact Sciences stock could test the 50-day moving average on Wednesday after falling 3.5% to 61.26 on Tuesday.
CRSP stock increased slightly in extended action. Crispr reported a lower-than-expected fourth-quarter loss and said it is on track to complete FDA approval for its gene-modified therapy to treat sickle cell disease and transfusion-dependent beta-thalassemia by the end of Q1. Crispr shares fell 4.8% Tuesday to 62.07, falling below the 50-day moving average.
COIN stock fell overnight as Coinbase reported a slightly smaller-than-expected fourth-quarter loss as revenue plunged 75%. COIN stock fell 8.4% to 46.63 on Tuesday, back towards the 200-day and 21-day moving averages. Investors could see a decisive bounce from these levels as some form of aggressive entry.
WING stock fell 4.2% on Tuesday to 166.21, slipping below a 169.04 Cup with Henkel buy point that cleared last week, according to MarketSmith analysis.
TJX shares declined 1.3% to 78.82, slightly below the 50-day moving average on a 6%-deep flat basis. The official buy point is 83.23, but a strong move above the 50-day moving average would also break a trendline entry.
BIDU shares fell 0.6% to 140.82 on Tuesday, below the 21-day moving average but above the 50-day moving average.
Nvidia shares fell 3.4% to 206.55 on Tuesday, just below its 21-day moving average. Microsoft (MSFT) announced that its Xbox games will be available on Nvidia’s clouding gaming service. NVDA stock is extended from a bottom but has a 3 week tight pattern with a buy point of 230.59. By Wednesday’s close, the chip giant is likely to be holding a daily chart with the same entry for a consolidation stretching back into April. However, Nvidia inventories would continue to roll over from the 50-day/10-week lines.
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 Tuesday, with selling soon accelerating after S&P Global’s flash data release of the US economy, with the composite index and services indicator both moving above break-even 50 levels.
The Dow Jones Industrial Average fell 2.1% in trading on Tuesday. The S&P 500 index fell 2%. The Nasdaq Composite fell 2.5%. Small-cap Russell 2000 fell 2.9%.
US crude prices fell 0.2% to $76.16 a barrel, continuing last week’s sharp losses. Natural gas futures are down 8.9% on Tuesday and 19% over the past four sessions.
Copper prices recovered by 2.9%.
The 10-year government bond yield rose 13 basis points to 3.95%. That’s the highest level since November and 62 basis points higher than the Feb. 2 low. Some of this reflects optimism that the US will not fall into recession. However, this also means that inflation is likely to be more persistent and that the Fed could tend to become more aggressive. Markets now see at least an 80% chance of three more quarter-point hikes, with a small but increasing chance of a half-point hike in March or May.
On Wednesday, the Fed will release minutes from January 31st to February 2nd. 1 meeting. On Friday, investors will get the January reading for the PCE price index, the Fed’s preferred indicator of inflation.
ETFs
Among growth ETFs, the innovator IBD 50 ETF (FFTY) lost 2.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2%. The VanEck Vectors Semiconductor ETF (SMH) is down 3%. Nvidia stock is a big SMH holding.
ARK Innovation ETF (ARKK) plunged 6.1% and ARK Genomics (ARKG) 6.25%, reflecting stocks with more speculative histories. CRSP shares and Coinbase are two big holdings at Ark Invest.
The SPDR S&P Metals & Mining ETF (XME) lost 2.6%. The US Global Jets ETF (JETS) fell 3%.
The SPDR S&P Homebuilders ETF (XHB) lost 3.9% as Home Depot’s guidance and rising yields hurt home-related stocks. The TOL share is an XHB holding.
The Energy Select SPDR ETF (XLE) and Financial Select SPDR ETF (XLF) were each down 2.1%. The Health Care Select Sector SPDR Fund (XLV) fell 1.3%.
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Analysis of the market rally
The stock market rally extended its pullback on Tuesday. The S&P 500, Nasdaq and Russell 2000 all fell sharply, falling below their 21-day moving averages. The Dow Jones fell decisively below its 50-day moving average after holding this key level for a month.
So far, the market decline still looks normal on a weekly chart, but it’s a bit like saying that a person’s blood pressure is “normal” but nearing the upper limit.
The S&P 500 and Nasdaq fall near their 50-day and 200-day moving averages, respectively. Breaking these levels would be worrying.
Recent breakouts and buy signals have struggled, with the overall market slipping since February 2nd and particularly in the last three sessions.
Rising Treasury yields and a recovering dollar weigh on stock prices, particularly growth stocks. With some short-term returns in excess of 5%, that’s a pretty decent risk-free return compared to stocks.
More broadly, the market rally is no longer shaking off (at best) mixed earnings, forecasts and economic data.
The good news is that investors are no longer looking so complacent. The Cboe Volatility Index, or VIX, rose to its highest level since early January just before the following day on January 6th.
Speculative growth stocks that have boomed from January’s bear market lows may not lead further higher if their actual earnings disagree.
Some mining stocks showed strength as copper and other metals prices rallied. But will this take longer than a day?
More defensive names stand out again. Lamb Weston (LW) meanwhile is hovering around a buy point Hershey (HSY) was flirting with a breakout on Tuesday. Walmart (WMT) gave a buy-signal on earnings despite weak guidance.
Time the market with IBD’s ETF market strategy
What now
Investors should become more defensive and perhaps reduce overall exposure. Even if this is not your explicit goal, you should reduce your exposure by trimming individual losers or at least partially taking profits on some winners.
The recent pullback could still be positive. Stocks that resisted the initial slight pullback in early February are now taking a breather or falling back. A couple of good days could easily reignite the fortunes of the market rally and trigger a number of buying opportunities. So investors should be ready to trade and build their watch lists.
But if conditions worsen, you’ll have to back down harder. So stay flexible and stay committed.
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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