Dow Jones futures edged higher, along with S&P 500 futures and Nasdaq futures, as Treasury yields fell ahead of the ISM services index in February. Broadcom (AVGO) and Hot AI play C3.ai headlines overnight..
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The stock market rally pulled back from opening lows on Thursday, even as the 10-year Treasury yield surged well above 4%. A generally weak open turned into a solid positive day as a Fed official supported a quarter-point move.
salesforce.com (CRM) raised the Dow. Tesla (TSLA) fell, weighing on the S&P 500 and Nasdaq.
Some stocks, including Salesforce, gave buy signals. But the market uptrend is still under pressure as important tests are ahead.
Broadcom (AVGO) and artificial intelligence plays C3.ai (AI) and veritone (VERI) reported on Thursday evening.
More details about Tesla’s Mexican 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 rose 0.2% versus fair value. S&P 500 futures were up 0.25% and Nasdaq 100 futures were up 0.2%.
Bitcoin plummeted overnight after holding up relatively well on Thursday as more crypto-related businesses plummeted.
The 10-year government bond yield fell 6 basis points to 4.02% after briefly falling to 4%.
The ISM will release its February non-manufacturing index at 10:00 am ET. The hot January ISM services index on Feb. 3, along with the jobs report, helped spark the market rally’s decline from the highs.
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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AVGO stock rose nearly 2% in extended trading after Broadcom’s earnings beat forecasts, with second-quarter revenue guidance also coming in slightly higher. Broadcom shares rose 0.9% to 598.65 on Thursday, recovering from the 21-day moving average after recently bouncing off the 50-day/10-week moving average. AVGO stock has a grip buy point of 617.11 on a long consolidation. But the chip and software manufacturer is correct with an early entry.
AI stock is up 15% in premarket trading, signaling a possible buy signal as C3.ai’s earnings results beat prospects and the company is trending higher. AI shares rose 2.8% to 21.31 on Thursday after falling below its 21-day moving average on Wednesday. A strong recovery on Friday could offer an aggressive entry for AI stocks after breaking a trendline from its early February high.
VERI stock rose 5% overnight. Veritone missed revenue and earnings, but new bookings soared 141%. Shares fell 1.2% to 6.36 on Thursday. Veritone stock bottomed in late January and rose for a few days before plunging again. VERI stock is now below the 50-day and 200-day line.
Costco Wholesale (COSTS), north current (JWN) and Zscaler (ZS) also reported. COST stock fell 2% and Nordstrom was little changed on the mixed results. ZS stock plummeted as the accounts failed to impress. All three closed below their 200-day moving averages.
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 trading on Thursday. The S&P 500 index was up 0.8%, with Salesforce and DXCM stocks the top performers and Tesla the worst performers on the day. The Nasdaq Composite rose 0.7%. Small-cap Russell 2000 rose 0.2%.
US crude prices rose 0.6% to $78.16 a barrel for the third straight day. Gasoline futures are up almost 1% and are up 14.5% so far this week.
The 10-year government bond yield jumped 8 basis points to 4.07%, closing above 4% for the first time since November 9th. Blame lower-than-expected US jobless claims and higher-than-expected eurozone inflation. The 10-year yield isn’t far off the October 15-year high of 4.33%.
Atlanta Fed President Rafael Bostic said he “strongly” supports a quarter-point hike at the March meeting after several policymakers signaled support for or open to a half-point hike. However, Bostic is a non-voting member in 2023.
Markets are solidly expecting at least three more quarter-point rate hikes from the Fed, but with a good chance of a 50 basis-point move in March or May. And some now easily favor a fourth quarter point hike at the July meeting. That would bring the range of fed funds from 4.5% to 4.75% today to 5.5% to 5.75%.
ETFs
Among growth ETFs, innovator IBD 50 ETF (FFTY) was up 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) is up 2.4%. CRM stock is a large IGV holding company. The VanEck Vectors Semiconductor ETF (SMH) closed down 0.9% after a Thursday morning plunge.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 1.2% and ARK Genomics ETF (ARKG) was up 0.4%. Tesla stock is a key position in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) was up 0.4% and Global X US Infrastructure Development ETF (PAVE) was up 1.2%. The US Global Jets ETF (JETS) is up 0.45%. SPDR S&P Homebuilders ETF (XHB) is up 0.7%. The Energy Select SPDR ETF (XLE) is up 0.9% and the Financial Select SPDR ETF (XLF) is down 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 shares fell 5.85% to 190.90, breaking below the 21-day moving average for the first time since Jan. 19. From a technical perspective, TSLA stock may simply be offering a market shakeout. This could allow the 50-day moving higher while the 200-day moving down to 217.65 16th February high. 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: excitement at Tesla Investor Day, revived demand for price cuts, and the overall market recovery led by highly valued growth stocks.
But Wednesday’s Tesla Investor Day was largely a non-event, showing no new EV design, let alone the idea that a low-cost model could go into production.
(Tesla on Wednesday night confirmed plans to build an electric vehicle plant in northeastern Mexico. Construction is slated 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 back of January’s global price cuts and US tax credits. But demand appears to be fading again, at least outside the Model Y in the US, as backlogs shrink and more discounts appear.
In fact, Tesla has just started offering new discounts on many existing Model 3 and Y vehicles in many European countries. This follows the Model 3 price cuts in Denmark a few days ago.
Finally, the growth-driven market rally has cooled in recent weeks.
Analysis of the market rally
The stock market rally appeared to be in real trouble at the open on Thursday as the S&P 500 undercut its 200-day moving average. The Nasdaq Composite, which fell below its 200-day moving average on Wednesday, is heading towards its 50-day moving average. Even the Russell 2000 tested its 10-week line.
But even with Treasury yields rising, the major indices improved quickly and then turned largely positive in the afternoon. This is despite rising Treasury yields and with megacap TSLA stocks having a bad day.
The S&P 500 reclaimed its 50-day moving average while the Nasdaq climbed back above its 200-day line. The Dow Jones, boosted by a 11.5% gain in earnings from CRM stock, led the rise but is still close to 2023 lows. The Russell 2000 closed slightly below its 21-day moving average, where met resistance for several days.
Russell, Nasdaq and S&P 500 must decisively retake their 21-day moving averages to provide any reasonable evidence that the market rally is regaining momentum. The February 2nd highs would be the next big test above it.
Leading stocks, which have outperformed indices over the past month, also showed strength on Thursday. In addition to CRM inventory, octa (OKTA) broke out of an earnings base. DXCM stock flirted with buy signals. Builders FirstSource (BLDR) has ended a long consolidation. Many other extended moves from buy areas or entered positions.
But if indices continue to collapse, leaders will collapse too. It’s hard to imagine that the major indices will hold up if government bond yields continue to rise. Friday’s ISM Services Index and market reaction to this report will be important.
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What now
The stock market rally scored a much-needed win on Thursday. Several leading stocks flashed buy signals as major indices gained momentum.
But the market uptrend is still under pressure. The S&P 500 and Nasdaq are just one bad day away from falling below key levels.
Investors should be careful when adding exposure. If the S&P 500 and Nasdaq move above their 21-day moving averages, you could gradually rebuild your portfolio.
Right now you want to quickly reevaluate your watchlists.
Since the market is in such a tight trading range, there could be a decisive move up or down soon. So be flexible and stay alert.
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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