Dow Jones futures rose slightly on Thursday, along with S&P 500 futures and Nasdaq futures. The stock market rally had an even to lower session on Wednesday.
X
The Nasdaq led the decline Apple (AAPL), Google’s parent company Alphabet ( GOOGL ) and Tesla shares extended big weekly losses. At the same time, shares of Apple and Google fell below a certain level of support Tesla ( TSLA ) is nearing its bear market lows.
Tesla continued to slide on Thursday amid mixed news.
Side action over the last few weeks has been tough to buy power. Torn markets tear investors apart. Not a good time to add exposure.
The Pentagon said on Wednesday Amazon.com (AMZN), Google, Microsoft (MSFT) and Soothsayer (ORCL) has won cloud computing contracts that could total $9 billion by 2028. In 2019, the Department of Defense awarded a $10 billion cloud computing contract, but canceled the deal in 2021 over Amazon’s objections.
The four tech giants were little changed in after-hours trading.
Dow Jones Futures Today
Dow Jones futures rose 0.4% versus fair value. S&P 500 futures rose 0.4% and Nasdaq 100 futures rose 0.45%.
The yield on 10-year government bonds rose by 6 basis points to 3.47%.
Oil futures jumped nearly 4% after hitting 2022 lows on Wednesday. The Keystone pipeline was shut down due to the leak.
Copper rose 1%.
The Hang Seng Index retreated 3.4%, resuming its recent uptrend, as local media reported that Hong Kong was considering ending its outdoor mask rule. US-listed Chinese stocks were solidly higher.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading on the next regular exchange.
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Stock market rally
The stock market rally traded slightly lower for most of Wednesday’s session, closing generally in the red.
The Dow Jones Industrial Average climbed less than two points in Wednesday trading. The S&P 500 index fell 0.2%. The Nasdaq Composite fell 0.5%. The small-cap Russell 2000 fell 0.3%.
U.S. crude fell 3% to $72.01 a barrel, continuing to fall on concerns about global demand. Gasoline futures fell 3.4% to a one-year low. Natural gas prices jumped 4.6% after a sharp decline in five sessions.
The 10-year Treasury yield fell 10 basis points to 3.41%, hitting its lowest level in nearly three months.
The inverse relationship between stocks and bond yields is weakening as Treasury yields are now falling more due to recession fears easing inflationary pressures. The tame November CPI report on December 13th would still be exciting. While a half-point rate hike on December 14 appears highly likely, progress in inflation would raise hopes for a smaller hike in early 2023 and an earlier end to tightening. This would reduce the risk of a slump or at least a hard landing.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.5%. VanEck Vectors Semiconductor ETF (SMH) closed just below breakeven. Shares of ARK Innovation ETF ( ARKK ) fell 0.8% on more speculative stories and ARK Genomics ETF ( ARKG ) rose 0.3%. TSLA stock is the top holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) fell 0.3% and the Global X US Infrastructure Development ETF ( PAVE ) lost a fraction. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF ( XHB ) rose 1.8%. The Energy Select SPDR ETF (XLE) was down 0.2% and the Financial Select SPDR ETF (XLF) was down 0.4%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.8%.
Top five Chinese stocks to watch
Apple Stock and Google Stock
Apple shares fell 1.4% to 140.94 on Wednesday, the lowest level since Nov. 10. AAPL shares are down 4.65% so far this week, undermining their 50-day mark. The tech titan Dow Jones is nearing its Oct. 13 low of 134.37 but still some distance from its June 16 bear market low of 129.04.
Google shares fell 2.1% to 94.94, below its 50-day mark. GOOGL shares are down 5.4% so far this week, erasing the gains of the previous three weeks. The stock is still comfortably above its Nov. 3 bearish low of 83.34.
Tesla shares
Tesla shares fell 3.2% to 174.04 on Wednesday, closing at a bear market low of 166.19 set on Nov. 22. Shares are off 10.7% so far this week. TSLA shares are down more than 50% in 2022.
Tesla cut Chinese car prices by 6,000 yuan in stock on Wednesday. Along with insurance subsidies, free charging and other goodies, Tesla is offering more than 21,000 yuan in incentives for cars on the lot. This follows an across-the-board price cut at the end of October in China. And it comes ahead of the government’s EV subsidies, which expire on December 31, which should push demand forward. It also comes amid widespread reports – which Tesla has denied – of looming production cuts in Shanghai.
Tesla’s Shanghai factory will shorten production shifts and delay the induction of some new employees due to weak Chinese demand, sources told Bloomberg. This follows recent widespread reports, denied by Tesla, that the EV giant will cut production in Shanghai by 20%.
Meanwhile, Tesla’s China chief Tom Zhu has been tapped to run the Austin factory and ramp up production there, Bloomberg reported Thursday.
Elon Musk’s bankers may offer him new margin loans backed by Tesla stock to replace some of Twitter’s high-interest debt, Bloomberg reported Wednesday evening. Banks tried to get rid of Twitter’s debts. Musk has already pledged a lot of his Tesla shares.
Shares of TSLA were down slightly on Thursday to start the year.
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Market rally analysis
The stock market rally continued its decline, although the technical picture did not change significantly.
The Nasdaq tested its 50-day line, a day after falling below its 21-day moving average. Shares of Apple, Google and Tesla weighed on the major-cap indexes, but the underlying trend was also slightly lower.
The major indexes have generally trended higher since their Oct. 13 lows, particularly the Dow Jones and the S&P 500. The market rally late last week appeared to be gathering steam, with the S&P 500 above its 200-day mark and the Dow Jones hitting a seven-month high.
But with the recent pullback, the major indexes and the Russell 2000 are pretty much where they were in early November or late October.
Side markets are among the most dangerous for investors, especially when there is up and down volatility. There is just enough strength on the rise to entice buyers, but then the market swings lower for a time. That forces investors to either cut losses while they’re small — with a good chance the stock will rebound — or risk a much bigger drop.
The current restless market rally has another obstacle. Most of the backups came in a handful of one-day sessions, so it’s hard to have even mini-uptrends to build profits on new positions.
Time The Market with the IBD ETF Market Strategy
What now
The stock market rally has hit resistance and is testing some key levels, but is not yet seriously damaged. If you have modest exposure with positions that work, you don’t need to exit. Of course, taking partial profits is never a bad idea in this market.
However, there is a good chance that anyone who has been buying stocks in the last few weeks when they have broken out or early buy signals are down on these holdings. In a choppy market, when stocks start to look interesting, they may be at the top.
Investors should be wary of adding exposure until the market clears the recent trading range, with the S&P 500 firmly above its 200-day mark. That may not happen until next week’s CPI inflation report and the Fed meeting.
Even then, investors should increase positions slowly, in case the major indexes pull back again after reaching near-term highs.
But keep working on those watchlists. Industrial and infrastructure plays look good, along with a number of medicines. Some brokers move around buy points. Chip device names indicate relative strength, with a number of semiconductor clearances holding up well.
Read The Big Picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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