Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with Fed chief Jerome Powell looming large later next week. The stock market rally pulled back from key resistance last week while Treasury yields returned to 3%.
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Highly rated growth names, which had made big moves in the past two months, were among the biggest losers. Bitcoin and other cryptocurrencies sold off heavily on Friday.
Investors should wait to see how the market pullback plays out before adding new exposure.
Warren Buffett’s shares of Apple (AAPL) and Occidental Petroleum (OXY) are worth watching. Occidental Petroleum took a hit on Friday when Warren Buffett’s Berkshire Hathaway won regulatory approval to raise its stake in OXY to 50%. AAPL stock is trading around a trendline entry. Tesla ( TSLA ), Celsius Holdings ( CELH ), AstraZeneca ( AZN ), Monolithic Power Systems ( MPWR ), and Insulet ( PODD ) are also near multiple buy points.
CELH shares and monolithic power are on the IBD Leaderboard Watchlist. AZN shares are on SwingTrader. MPWR stock is listed in IBD’s Long Term Leaders. Celsius, Monolithic and Tesla stocks are in the IBD 50. Monolithic and OXY stocks are in the IBD Big Cap 20.
Insulet and AstraZeneca were IBD Stock Picks of the Day last week.
The video embedded in this article took an in-depth look at the weekly market rally action, while also discussing shares of Occidental Petroleum, Monolithic Power and AZN.
Powell, head of the Fed
Fed chief Powell will deliver a policy speech on Friday at the annual meeting in Jackson Hole. Powell has used this speech in previous years to mark notable policy changes. It’s unclear what he might say that would shock the markets. The Federal Reserve is in the midst of a cycle of rate hikes to combat high inflation. Policymakers may soon move to smaller Fed rate hikes, but Powell may not be ready to shake hands.
It could point to longer-term challenges, such as tight labor supply due to demographics, that could spur the Fed to keep rates higher in the coming years.
Markets are divided on whether the Fed will raise interest rates by 75 basis points for a third straight time at its Sept. 20-21 meeting or opt for a half-point move.
Even after his speech, there will still be several key economic reports ahead of the Fed’s September meeting, including the August jobs report and the consumer price index.
Bitcoin Tumbles
Bitcoin fell to around $21,000 on Friday after retreating modestly earlier in the week. The digital currency held steady above $21,000 on Saturday. After falling below $18,000 in June, Bitcoin’s price had recovered to nearly $25,000 on August 14. Like speculative growth stocks, Bitcoin and cryptocurrencies struggle with rising Treasury yields. Higher yields also strengthen the dollar.
Bitcoin-related stocks like Coinbase ( COIN ) also fell sharply last week.
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’s rally began the week moving toward or above key resistance, but eventually retreated, mostly or entirely on Friday.
The Dow Jones Industrial Average fell 0.2% in the stock market last week. The S&P 500 fell 1.2%. The Nasdaq composite fell 2.6%. The small-cap Russell 2000 slipped 2.9%.
The 10-year Treasury yield rose 14 basis points to 2.99%, including up 11 basis points on Friday.
U.S. crude futures fell 1.4 percent to $90.77 a barrel last week, but rebounded well after hitting weekly lows. Natural gas futures traded near 14-year highs.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 2.9% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 0.4%, erasing strong weekly gains . The iShares Extended Technology Software Sector ETF ( IGV ) sank 3.9%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 4.2%, with shares of MPWR one share.
The SPDR S&P Metals & Mining ETF ( XME ) sank 4.2% last week. The Global X US Infrastructure Development ETF (PAVE) fell 1.4%. US Global Jets ETF (JETS) fell 4.2%. The SPDR S&P Homebuilders ETF (XHB) reversed lower, sinking 3%, ending an eight-week winning streak. The Energy Select SPDR ETF ( XLE ) rose 1.3% and OXY shares were a notable contributor. The Financial Select SPDR ETF (XLF) shed 1.8%. The Select Healthcare Sector SPDR Fund ( XLV ) fell 0.5% last week, but rose on Friday.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 14% last week, undercutting its 50-day line. ARK Genomics ETF ( ARKG ) plunged 13% above its 50-day.
Tesla stock is a major holding in Ark Invest’s ETFs.
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Warren Buffett Stocks
Shares of OXY rose 9.9% to 71.29 on Friday, beating a 66.26 cup-handled buy point on triple normal volume, according to MarketSmith analysis. Shares have extended a bit from the 5% buy zone, so investors may want to wait for a pullback.
Occidental Petroleum has outperformed many other oil stocks as Warren Buffett’s Berkshire has built up an OXY stake of just over 20% in recent months.
On Friday, Berkshire disclosed that the Federal Energy Regulatory Commission approved its application to buy up to 50% of Occidental Petroleum, triggering the breakup. Berkshire applied for the right to do so on July 11, the company said Friday.
Berkshire’s No. 1 position is in Apple, which outperformed other megacaps and the broader market over the past two months. Apple shares fell 1.7% to 171.55 on Friday. The tech giant Dow Jones ended a six-week winning streak, but fell just 0.3%. AAPL stock is once again below a downtrend line, currently around 173, which could serve as an early entry. The official buy point is 183.04. Ideally, Apple stock will form a handle soon.
Other stocks to watch
Tesla shares fell 1.1% to 890, retreating below the 200-day line. TSLA shares hit a three-month high of 944 on Tuesday, shrugging off an aggressive entry. Overall, Tesla held up much better than rival electric vehicle makers and Ark-type stocks last week, but is a long way from the official buy point of 1,208.10.
On August 25th, TSLA stock will split 3 for 1. Whether that will be a positive or negative catalyst is unclear. Tesla proposed the split months ago, while shareholders approved it on August 4.
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Shares of CELH fell 6.5% to 98.28 last week, but are finding support around their 21-day moving average. A short cut from the 21 day line could be helpful. After rallying since late May, Celsius shares have now formed for a deep nine-month consolidation, offering a buy point at 109.84.
Shares of AZN rose 0.8% to 67.17 last week, nearly retrieving an old buy point of 67.50 after recovering from the 50-day line the previous week. The relative strength line has weakened in recent weeks as AstraZeneca shares consolidated while the broader market advanced. But shares of AZN and other defensive growth names may be poised to outperform once again.
Shares of MPWR fell a little more than 3% last week to 511.65, which was an inside week from the previous week. Monolithic Power shares have a 541.49 cup-with-handle buy point after the chipmaker rallied from early July to early August. A drop to the 21-day moving average would match the 500 level and only lower the lows of the handle.
PODD shares fell 1.2% to 267.42 last week. The diabetes product maker’s stock has a 276.48 buy point in a deep double-bottom base. Islet stock could use a bit more of a jolt, perhaps to the 21-day moving average.
Analysis of market concentration
The stock market’s rally hit resistance around the 200-day moving average last week. The S&P 500 was within a point of this key level, while the Dow Jones and Russell 2000 moved above it during the week, but ultimately finished below.
Initially, the major indices were flat, resisting the pullback even as ARKK and highly valued growth names saw heavy losses. But on Friday, the Nasdaq finally broke below its 10-day moving average, moving toward its 21-day line.
The major indexes had been rising for several weeks, with many former leaders rising 50%, 100% or more from the bottom. So the 200-day line was a logical place for a pullback.
Rising Treasury yields helped provide a news hook for last week’s pullback. Higher rates are a drag on stocks, especially highly valued growth names. The rebound in energy prices, if sustained, could limit or even stop the fall in inflation, while leading to bigger Fed rate hikes for longer.
However, higher energy prices are good news for oil and gas stocks such as Occidental Petroleum, which was one of the big winners last week.
Drugmakers and defensive growth stocks held up relatively well, including shares of AZN and Hershey (HSY).
A pullback to the 21-day line would likely be good news for the market’s recovery, leaving stocks like Monolithic and Celsius to pick deeper handles for a proper shakeout. But you never know if a modest pullback will turn into something more serious, or which sectors might struggle the most.
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what to do now
Investors should be cautious about adding net exposure at this time as the stock market rally recedes. If you decide to buy a new share, you can offset it by taking partial or full profits in other holdings.
So far there is no need to reduce the exposure, but do not let decent profits fall to zero and rush to reduce losing positions.
This is a good time to work on watch lists. There is still a lot of leadership or potential leadership in the market. Many stocks may cut handles, bases or pullbacks in the coming days, creating plenty of buying opportunities.
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