Dow Jones futures were slightly higher on Friday morning, along with S&P 500 futures and Nasdaq futures, as Treasury yields pulled back from February’s ISM services index. Broadcom (AVGO) and the hot AI drama C3.ai is a major overnight earner..
Even as the 10-year Treasury yield ran decisively above 4%, the stock market rally roared back from early Thursday. A generally weak open turned into a solidly positive day as a Fed official backed a quarter-point move.
Salesforce.com (CRM) raised the Dow. Tesla (D.S.L.A) underweighted the S&P 500 and the Nasdaq.
Some stocks, including Salesforce, showed buy signals. But market bullishness is still under pressure as key tests loom.
Broadcom (AVGO) and play artificial intelligence C3.ai (AI) and Veritone (Information) reported Thursday night.
More details about Tesla’s Mexico factory emerged overnight.
A video embedded in this article reviews Thursday’s market action and examines CRM stocks, AHER test systems (ahr) and Dexcom (DXCM)
Dow Jones Futures Today
Dow Jones futures rose 0.2% versus fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures rose 0.2%.
Bitcoin fell overnight after holding relatively well on Thursday as more crypto-related companies fell.
The 10-year Treasury yield fell 6 basis points to 4.02%, briefly closing at 4%.
Crude oil futures fell slightly.
Copper is expensive.
The ISM will release its nonmanufacturing index at February 10 ET. A warm January ISM services index on February 3, along with a jobs report, helped pull back the market’s gains.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
AVGO shares rose 1% in extended trading after Broadcom topped earnings views, with Q2 earnings guidance slightly higher. Broadcom shares rose 0.9% to 598.65 in Thursday’s regular session, recently rebounding from the 50-day/10-week lines above the 21-day line. AVGO stock has a 617.11 handle buy point in a long consolidation. But the chip and software maker is right at an early entry.
AI stock jumped 17% in pre-market trade, signaling a possible buy signal as C3.ai earnings results topped views and the company led the rise. AI stock rose 2.8% to 21.31 on Thursday after sliding below its 21-day line on Wednesday. A powerful rebound on Friday could provide an aggressive entry for AI stock after it broke the trendline from its February open.
VERI stock rose 5% overnight. Veritone revenue and earnings missed, but new bookings rose 141%. Shares fell 1.2% to 6.36 on Thursday. Veritone stock cleared a low in late January and rose for a few days before falling again. VERI stock is now below the 50-day and 200-day lines.
Costco Wholesale (cost), Nordstrom (JWN) and Zscaler (ZS) has also been reported. COST stock fell 2% and Nordstrom was little changed on mixed results. ZS stock falls as billings fail to impress. All three closed below 200-day lines.
Join IBD experts as they analyze the stocks that could act on the stock market rally on IBD Live
Stock market rally
The Dow Jones Industrial Average rose 1.05% in stock market trading Thursday. The S&P 500 index rose 0.8%, with Salesforce and DXCM stocks the best performers and Tesla the worst of the day. The Nasdaq composite advanced 0.7%. The small-cap Russell 2000 rose 0.2%.
U.S. crude oil prices rose 0.6% to $78.16 a barrel, a third straight session high. Gasoline futures rose nearly 1%, up 14.5% so far this week.
The 10-year Treasury yield rose 8 basis points to 4.07%, finishing above the 4% level for the first time since Nov. 9. Lower-than-expected US jobless claims and higher-than-expected Eurozone inflation. The 10-year yield is not far from October’s 15-year high of 4.33%.
Atlanta Fed President Rafael Bostic said he would “definitely” support a quarter-point hike at the March meeting, after many policymakers either supported or were open to a half-point move. Bostick is a non-voting member in 2023.
Markets firmly expect at least three more quarter-point Fed rate hikes, but there is a good chance of a 50-basis-point move in March or May. Some now favor a fourth-quarter point hike at the July meeting. That would bring the Fed funds range up to 5.5%-5.75% from 4.5%-4.75% today.
Among growth ETFs, the innovator IBD 50 ETF (FFTYUp 0.1%. iShares Expanded Technology-Software Sector ETF (IGV) up 2.4%. The CRM stake is a major IGV holding. VanEck Vectors Semiconductor ETF (SMH) closed up 0.9% after falling Thursday morning.
Reflecting the more speculative story stocks, the ARK Innovation ETF (ARKK) rose 1.2% and the ARK Genomics ETF (ARKGrose 0.4%. Tesla shares are a major holding across ArcInvest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) rose 0.4% and the Global X US Infrastructure Development ETF (sidewalk) advanced 1.2%. US Global Jets ETF (JETS) rose 0.45%. SPDR S&P Homebuilders ETF (XHBincreased by 0.7%. Energy Select SPDR ETF (XLE) warmed up to 0.9% and fund pick SPDR ETF (45fell 0.5%. Health Care Select Sector SPDR Fund (XLV) gained 0.6%. DXCM stock is part of the XLV ETF.
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Tesla shares 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 offer a shakeup. When the 200-day line breaks below the Feb. 16 high of 217.65 it could capture the 50-day line. A decisive move above those levels would provide an aggressive entry.
But Tesla more than doubled from its Jan. 6 high of 101.81 on three factors: the Tesla Investor Day buzz, demand for price cuts and a general market rebound, led by high-value growth stocks.
But Tesla’s investor day on Wednesday was largely a non-event, with no new EV design on display, let alone the idea that a low-cost model could be in production.
(Tesla on Wednesday night confirmed plans to build an EV plant in northeastern Mexico. Construction would begin in three months, a Mexican official said Thursday night, adding that the site would be twice the size of the Austin plant.)
Tesla orders initially rose in January on global price cuts and US tax credits. But demand appears to be slowing again, at least outside of the Model Y in the US, as backlogs shrink and more discounts appear.
In fact, Tesla has started offering new discounts on several Model 3 and Y trucks in several European countries. This follows the Model 3 price cut in Denmark a few days ago.
Finally, the growth-led market rally has cooled in recent weeks.
Market rally analysis
The stock market rally looked to be in real trouble at Thursday’s open, as the S&P 500 broke its 200-day line. The Nasdaq composite, which fell below its 200-day line on Wednesday, is moving toward its 50-day line. Even the Russell 2000 tested its 10-week range.
But even as Treasury yields rose, major indexes improved quickly and then turned broadly positive in the afternoon. That’s despite Treasury yields rising and megacap TSLA shares having a bad day.
The S&P 500 regained its 50-day range, while the Nasdaq returned above its 200-day range. Dow Jones led CRM stock’s 11.5% gain in earnings, but it’s still close to 2023. The Russell 2000 closed slightly below its 21-day moving average, where it hit resistance for several days.
The Russell, Nasdaq and S&P 500 should decisively recover their 21-day lines to provide reasonable evidence that the market rally is regaining momentum. The February 2 high will be the next big test above that.
Leading stocks, which have outperformed indices over the past month, also showed strength on Thursday. In addition to the CRM role, Octa (OKTA) gap from revenue base. DXCM shares flirted with buy signals. Builders First Source (BLDR) is destroyed by a long integral. Many extended moves from buy areas or shifted positions.
But if the codes break down further, so will the leaders. If Treasury yields are high, it’s hard to see the major indices holding up. Friday’s ISM services index and market reaction to that report will be crucial.
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What to do now
The stock market rally got a much-needed hit on Thursday. Several leading stocks showed buy signals as major indices gained momentum.
But the bull market is still under pressure. The S&P 500 and Nasdaq had a worse day than the key levels.
Investors should be careful about adding exposure. If the S&P 500 and Nasdaq break above their 21-day lines, you can gradually rebuild your portfolio.
Now, you want to quickly reevaluate your watchlists.
With the market in such a tight trading zone, a decisive move could come soon. So be flexible and alert.
Read the big picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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