Dow Jones futures fell Tuesday morning, along with S&P 500 futures and especially Nasdaq futures, as the 10-year Treasury yield spiked to a fresh two-year high. The stock market rally is set to undercut key levels once again.
XThe stock market rally is still standing, but is bruised and wobbly. The major averages are testing key support areas, though the Nasdaq has held its 200-day line so far. The Nasdaq has lagged the S&P 500 index since last February, with that underperformance increasing over the past two months.
Apple (AAPL) stock and Apple iPhone chipmaker Qualcomm (QCOM) are two growth stocks holding up relatively well, while Tesla (TSLA) China rival Xpeng (XPEV) is right at an early entry. Meanwhile, DE stock is setting up, while SM Energy (SM) broke out Friday.
However, Apple, Qualcomm and Xpeng retreated with most stocks before Tuesday's open. Deere stock edged lower. SM stock rose with crude oil prices.
Goldman Sachs (GS) reported weaker-than-expected earnings early Tuesday, though the Dow financial giant's revenue topped. GS stock fell in premarket trade after moving below its 200-day line on Friday. Signature Bank (SBNY) comfortably beat EPS views. SBNY stock, at the edge of a buy zone, was not yet active.
Charles Schwab (SCHW) is due before the market open. Schwab stock is extended.
Xpeng stock is on the IBD 50 list. Deere (DE) was Friday's IBD Stock Of The Day.
The video embedded in this article discussed the volatile market action as well as SM stock, On Semiconductor (ON) and Deere.
Dow Jones Futures Today
Dow Jones futures fell 0.8% vs. fair value. S&P 500 futures sank 0.9%. Nasdaq 100 futures dived 1.55%.
The 10-year Treasury yield rose 4 basis points to 1.81%, matching a two-year high. The 10-year yield hit 1.83% overnight. The two-year Treasury yield topped 1% for the first time since 2020.
Crude oil prices rose more than 1%, hitting multiyear highs, as Houthi militants used drones to hit Abu Dhabi, striking some petroleum tankers.
U.S. markets were closed Monday in observance of the Martin Luther King Jr. holiday, though other exchanges around the world were open.
China's central bank cut its one-year lending rate by 10 basis points to 2.85%, the first cut since April 2020.
That monetary push comes amid a slew of Chinese economic data. China's economy expanded 4% in the fourth quarter vs. a year earlier, better than views for 3.3% but down from Q3's 4.9% pace. GDP expanded 8.1% for the full year. December industrial production climbed 4.3% vs. a year earlier, slightly better than forecasts. But retail sales grew just 1.7%, less than half of estimates for 3.8%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Coronavirus News
Coronavirus cases worldwide reached 331.85 million. Covid-19 deaths topped 5.56 million.
Coronavirus cases in the U.S. have hit 67.63 million, with deaths above 874,000.
New infections seem to have peaked in the U.K. as well as New York and Massachusetts, following the pattern in South Africa. Cases may be close to topping out nationwide, but not in much of the country. Hospitalizations are rising, but not nearly as much as in previous Covid waves.
Stock Market Rally
The stock market rally traded up and down near key support levels this past week, ultimately closing modestly to solidly lower.
The Dow Jones Industrial Average fell 0.9% in last week's stock market trading. The S&P 500 index and Nasdaq composite dipped 0.3%. The small-cap Russell 2000 gave up 0.8%.
The 10-year Treasury yield edged up 1 basis point to 1.77%, rebounding Friday after pulling back modestly for three straight sessions. It hit a 23-month high of 1.81% intraday Tuesday. U.S. crude oil futures climbed more than 6% for the week to $83.82 a barrel.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.3% last week, but after hitting a 52-week low intraday Monday. The Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1%. The iShares Expanded Tech-Software Sector ETF (IGV) slid 1.6%. The VanEck Vectors Semiconductor ETF (SMH) popped 3.4%, with Qualcomm stock a notable holding.
SPDR S&P Metals & Mining ETF (XME) climbed 2% last week. The Global X U.S. Infrastructure Development ETF (PAVE) retreated 1.3%. U.S. Global Jets ETF (JETS) edged up 0.1%. SPDR S&P Homebuilders ETF (XHB) retreated 1%. The Energy Select SPDR ETF (XLE) jumped 5.2% after surging 10.5% the prior week. The Financial Select SPDR ETF (XLF) retreated nearly 1%, but many banks had strong weeks. The Health Care Select Sector SPDR Fund (XLV) dipped 0.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) and ARK Genomics ETF (ARKG) both tumbled nearly 5% to 19-month lows. Tesla stock remains the No. 1 holding across ARK Invest's ETFs, but Cathie Wood has slashed her TSLA stake in recent months while stepping up investments in hard-hit, highly valued growth.
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Apple Stock
Apple stock edged up 0.5% to 173.07 last week. On Monday, Jan. 10, AAPL stock rebounded from its 10-week line for the first time since its November breakout. Investors could use a move above Thursday's high 176.62, a place to buy Apple stock from that 10-week line bounce. That would also push the iPhone maker above its 10-day and 21-day lines.
Apple doesn't have a base per se, but has been consolidating tightly over the past several weeks, with the relative strength line holding right around record highs. Investors might treat this recent trading as a messy flat base, with a buy point around 181-182.
Qualcomm Stock
QCOM stock rose 4.6% to 188.69 last week. Shares have generally found support at their 21-day line since mid-December, but on Jan. 10 rebounded from their 50-day line. The RS line for Qualcomm stock is at a new high, especially powerful performance for a growth stock.
QCOM stock has been consolidating in a messy fashion since mid-November, though the trading looks tighter on a weekly basis. Officially, Qualcomm stock has a three-weeks-tight entry of 193.68, just above the top of the broader consolidation. Investors might look for a "draw the line" entry that's a little lower than that. Alternatively, another test of the 50-day/10-week line, which might correspond to the 21-day, might be another way to enter Qualcomm.
The consolidation over the past two months follows two huge moves by QCOM stock. Shares gapped on earnings, then soared two weeks later as CEO Cristiano Amon touted a bright, post-Apple future for his company.
The wireless chip giant is likely to see its iPhone business fade in the coming years as Apple designs more chips in-house. But Qualcomm aims to expand its total addressable market from $100 billion today to roughly $700 billion over the next decade, connecting Internet devices from augmented reality glasses to automobiles.
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Xpeng Stock
Xpeng shot up 10% to 49.69 last week, rebounding from its 200-day line and reclaiming its 50-day line. Shares of the China EV startup, which has passed up Nio (NIO) and Li Auto (LI) in monthly deliveries, have an official buy point of 56.55 from a consolidation going back to Dec. 1. But XPEV stock just crossed a trendline on Friday, offering an early entry not far from its 50-day line. Shares also have 51.50 as short-term resistance.
As for Tesla stock, the EV giant rose 2.2% to 1,049.61 in a wild week, ending just below its 50-day line but slightly above its 10-week line. TSLA stock has a buy point slightly over 1,200.
SM Energy Stock
SM stock shot up nearly 12% to 36.64 last week, clearing a 35.82 cup-with-handle buy point on Friday, according to MarketSmith analysis. However, the volume was light. The RS line for SM stock is close to highs, reflecting its strong performance vs. the S&P 500. But it's a bit of a laggard in the oil patch. How long can oil prices and energy stocks keep running higher?
Deere Stock
Deere stock edged up 0.2% to 379.56 last week. Shares fell slightly on Friday, giving a new handle less of a wedging look. The handle buy point is 386.65 in a base going back to early September. But DE stock has been consolidating since last May or even March. After earnings doubled in fiscal 2021, analysts see solid growth for the farm equipment giant in 2022 and 2023.
Market Rally Analysis
The stock market rally's rebound from the Monday, Jan. 17, low hit resistance on Wednesday, with the major indexes tumbling on Thursday and Friday morning. But the Nasdaq, which undercut its 200-day line again on Friday, led a partial rebound.
The Dow Jones tested its 50-day line on Friday, with the S&P 500 holding below that key level. The Russell 2000 undercut Monday's low, threatening to break below a yearlong consolidation.
The major indexes are not far from their Jan. 10 lows. Closing below those levels could spell the end of the market rally, which is already under pressure. On the plus side, after a vicious sell-off in the prior week, the major indexes ultimately didn't give up much ground in this latest week.
The stock market rally still could use a convincing win. But, like a team down 3-0 or 3-1 in a best-of-seven series, a "win" wouldn't resolve the market's troubles. Beyond rebounding from or back above key moving averages, the major indexes need to reclaim Wednesday's highs. For the Nasdaq, the 50-day line and its Jan. 4 peak would be further tests.
But Dow futures suggest blue chips will open below their 50-day line again while the Nasdaq knives below its 200-day.
The Nasdaq composite has been lagging the S&P 500 for 11 months. That's despite megacaps such as Apple stock, Tesla, Microsoft (MSFT), Nvidia (NVDA) and Google parent Alphabet (GOOGL), which at least until very recently had all been outperforming the benchmark index. It's a reflection of how weak the average growth stock has been. Highly valued growth has been hammered, especially in the last couple of months, as FFTY, IGV and especially ARKK and ARKG show.
With the Federal Reserve increasingly hawkish and Treasury yields rising, growth stocks may continue to struggle.
Energy stocks remain strong, along with most financials. But Friday's JPMorgan Chase (JPM) sell-off is a reminder that earnings season is back, adding to a host of risks for individual stocks, sectors and the broader market.
The 200-Day Average: The Last Line Of Support?
What To Do Now
Investors should be defensive. The major indexes are closer to breaking down than breaking out. Growth and tech stocks aren't working right now, aside from Apple and some chip names such as Qualcomm.
Don't rush to jump into the next bounce in growth. After several head fakes, investors should wait for real strength, not another dead-cat bounce.
Energy and financial sectors continue to lead, along with fertilizers and some other cyclical names. But don't get too concentrated even here. A reversal in these areas would not be surprising, either from underlying bond or commodity prices shifting or the broader stock market dragging everything down.
This is a time to be building watchlists. Look for stocks showing strong relative strength and holding key support levels. A number of machinery, chemical and industrial stocks are shaping up, including Deere. Keep reworking your lists. Some stocks, such as Home Depot (HD), looked strong and steady two weeks ago but now are tumbling. Meanwhile, some other names, such as Xpeng and Deere, are showing a bit of strength.
Read The Big Picture every day to stay in sync with the 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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