Dow Jones futures will open Sunday evening, along with S&P 500 and Nasdaq futures. The stock market rally had strong gains last week, breaking above some key resistance. Technicals pulled Snap ( SNAP ) and other poor earners on Friday.
Apple ( AAPL ), Microsoft ( MSFT ), Google Alphabet ( GOOGL ), Amazon.com ( AMZN ), and Facebook’s Meta Platforms ( META ) lead a massive week of gains.
Shares of META and Google sold off heavily on Friday on Snap results and a lack of guidance. Microsoft shares fell back to their 50-day line. Amazon just cut big weekly gains. But Apple stock is five even close to its 200-day line, and it has no obvious buy point in sight.
Meanwhile, the Federal Reserve is meeting, with another big rate hike of 75 basis points likely to come on Wednesday. Guidance for future moves will be key. Investors have started to discount the size of September’s rate hike, with limited adjustment after that. That’s largely because the economy is rapidly slowing, perhaps even falling into a recession. A recession, coupled with still-high inflation, is not a good combination for business profits.
Fed Recession May Be Here; What this means for the S&P 500
While recent action in the major indices has been promising, investors should still be cautious while adding exposure.
Not many major stocks have shown buy signals. Meanwhile, several up-and-coming stocks have seen sudden selloffs, including Dollar Tree ( DLTR ), Lantheus ( LNTH ), Agilon Health ( AGL ), and Li Auto ( LI ), forcing tough decisions for investors.
LNTH shares are in the IBD rating, while Agilon was out on Friday. Li Auto and Agilon shares are in the IBD 50. MSFT and Google shares are in the IBD Long-Term Leaders.
The video embedded in the article reviewed major market action, while looking at Cross Country Healthcare (CCRN), Li Auto, and DLTR.
Dow Jones futures today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
Join IBD’s experts as they analyze actionable stocks in the stock market’s recovery on IBD Live
Stock Exchange meeting
The stock market rally had strong weekly gains, even with Friday’s pullback.
The Dow Jones Industrial Average rose 2% in the stock market last week. The S&P 500 gained 2.6%. The Nasdaq composite rose 3.3%. The small-cap Russell 2000 jumped 3.7%.
The 10-year Treasury yield fell 15 basis points to 2.78%, and fell 25 basis points from Thursday to Friday. The Treasury yield curve inverts from one year to 10 years. The six-month Treasury note rate, at 2.94%, is significantly above the 10-year Treasury yield. All this reflects the growing risks of recession.
US crude futures fell nearly 3% to $97.59 a barrel last week.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) shed 0.6% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) advanced 0.45%. The iShares Extended Technology Software Sector ETF ( IGV ) rose 5.4%, with MSFT shares a major component. The VanEck Vectors Semiconductor ETF ( SMH ) rose 5.6%.
The SPDR S&P Metals & Mining ETF ( XME ) rallied 1.9% last week. The Global X US Infrastructure Development ETF (PAVE) rose 5%. US Global Jets ETF (JETS) rose 0.9%. SPDR S&P Homebuilders ETF (XHB) soared 6%. The Energy Select SPDR ETF (XLE) gained 3.7% and the Financial Select SPDR ETF (XLF) gained 3%. The Select Healthcare Sector SPDR Fund ( XLV ) fell 0.3%.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) rose 4.85% last week and the ARK Genomics ETF ( ARKG ) 1.2%, although both gave up more than half of the weekly earnings on Friday.
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Stock Shakeouts, Shakedowns
When a leading stock sells at or below the buy point, investors face a tough decision: hold on, get out, or trim the position. There is not necessarily a “right” answer. Sometimes the stock will bounce back, other times it will continue to fall, perhaps after bouncing back briefly. A more cautious approach may make more sense in today’s volatile market. Buying close to the gate can also provide a little more cushion.
Shares of DLTR had been gradually climbing into a buy zone this week, when they suddenly fell almost 5% intraday on Thursday. The stock edged down a 166.45 buy point but found support at the 21-day line, according to MarketSmith analysis. At the close, DLTR shares were down just under 1%. Dollar Tree shares briefly broke out of the buy zone before the close on Friday.
Shares of LNTH hit a record high on Wednesday, just breaking out of a cup base but closing nearly 14% above the 50-day line. On Thursday, Lantheus shares fell 7.8% intraday, although they pared their loss to 3.1%. A quick shake? Maybe not. Shares of LNTH fell 4.5% on Friday.
Shares of Agilon broke out of a bottom base on Thursday with a 27.12 buy point. But shares fell 8.3% to 25.18 on Friday.
Shares of Li Auto bounced back from their 21-day line on July 13th and posted solid gains on Monday, July 18th. But the stock fell below its 21-day line on Tuesday, although it recovered to close above that key level, up 4.7%. On Wednesday, LI shares sank 3.7%, right off Tuesday’s lows. Li Auto nearly retook its 21-day line on Thursday, but then sold off convincingly on Friday. Ultimately, it was a bearish reversal week for China’s electric vehicle maker.
Analysis of market concentration
The stock market rally made significant progress last week. The major indexes broke above their 50-day and 10-week moving averages, which had been a key stumbling block in recent months.
Weak results from Snap, Verizon ( VZ ), Seagate Technology ( STX ) and Intuitive Surgical ( ISRG ) provided a catalyst for Friday’s pullback.
But the market may have had to pull back, especially the Nasdaq and growth stocks. It is better to get this withdrawal before the total crushing of earnings.
If everyone is optimistic about earnings, this is a recipe for big sales of real results. That may be especially true this time, with guidance especially unclear with the rapidly deteriorating economy.
Friday’s pullback underscores how treacherous the earnings season is, and not just for the company. Snap’s earnings report slammed shares of Meta and Google, along with other companies reliant on online ads and the broader market.
Friday’s pullback also shows the risks of bottom fishing, buying short growth stocks as they return to the run.
The market may have bottomed out in mid-June, but that doesn’t necessarily mean it’s a quick and easy march to all-time highs and beyond. The market bottomed in late 2002 and late 2008, but did not make a sustained run for several months.
In addition to tech titans Apple, Microsoft, Meta, Google, and Amazon, other notable performers this coming week include Exxon Mobil (XOM), Chevron (CVX), Merck (MRK), Pfizer (PFE), General Motors (GM), and Qualcomm . (QCOM).
Shares of Apple, Microsoft, Merck and XOM are components of the Dow Jones.
Time the Market with IBD’s ETF Market Strategy
what to do now
Investors should still have, at most, modest exposure. There haven’t been many good stocks to buy, and these can be prone to sudden selling. Earnings season and the Fed meeting could send the market, various sectors and individual stocks in all kinds of directions.
So be very careful for the next few days. If you’re making new purchases, look for early bird buying opportunities and try to buy as close to those tickets as possible.
Keep working on your watchlists. The upturn in the market has shown some strength. You want to be ready to take advantage of it.
Read The Big Picture every day to stay in sync 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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