Dow futures fell overnight, along with S&P 500 futures and Nasdaq futures.
The stock market suffered big losses after the ISM Services Index for August rose unexpectedly, pushing up Treasury yields and the odds of a Fed rate hike. The S&P 500 fell just below the 50 day EMA, with the NASDAQ breaking through this key level during the day before closing just above it. The Dow Jones and Russell 2000 fell below the 50-day line. The S&P 500 and Nasdaq are also not far from their follow-up day lows of August 29.
Dow jones futures today
Dow futures lost a fraction of their fair value. S&P 500 futures were down, and Nasdaq 100 futures were down 0.1%.
Remember that an overnight move in Dow futures and elsewhere does not necessarily translate into an actual trade in the next regular stock market session.
AI stock fell sharply in late trading after C3.ai missed first-quarter 2024 revenue, steered lower, on second-quarter sales, and pulled a non-GAAP profitability forecast by the end of fiscal 2024. The stock rose. C3.ai increased by 0.1%, reaching 31.46 on Wednesday, hitting the resistance at the 21-day line, well below the bearish 50-day line. AI stocks have fallen precipitously since they nearly tripled from early May to mid-June.
CXM stock fell slightly overnight after Sprinklr’s earnings beat expectations. CXM stock also rose 0.1% on Wednesday, to reach 15.82, remaining within a buy point range of 15.50, according to MarketSmith analysis. Shares of Sprinklr broke off a shallow cup base on Tuesday.
PATH stock rose strongly in extended trading after UiPath earnings beat expectations. The shares rose 0.25% to 16.22 on Wednesday, hitting resistance at the 50-day line. PATH stock has a consolidation buy point of 19.94. But a move above Thursday’s high of 16.58 could provide an early entry, or perhaps a break of the trendline just below 18 as well.
stock market rally
The stock market rally opened lower, but losses picked up significantly after 10 AM EST, when the ISM Services Index showed a surprise gain of 1.8 points to 54.5, versus a decline of 0.3 points to 52.4.
The Dow Jones Industrial Average fell 0.6% in stock market trading Wednesday. The Standard & Poor’s 500 Index fell 0.7%. The Nasdaq Composite fell 1.1%. Russell 2000 junior stock shed 0.3%.
US crude oil prices rose 1% to $87.54 a barrel, the new closing high in 2023. Crude oil rose 11% in its current nine-session series of gains.
The 10-year Treasury yield rose 2 basis points to 4.29%, after falling to 4.24% before the ISM Services Index. The yield on the 10-year note has risen by 20 basis points in the past three sessions, and is now approaching the long-term high of 4.36% set on August 22nd.
The two-year Treasury yield, which is closely linked to Fed policy, is back above 5%, up nearly 6 basis points to 5.02%.
Investors still see little chance of a rate hike later this month, but the odds of a Fed hike on November 1st are back to roughly 50-50.
Exchange Traded Funds
Among the growth ETFs, the Innovator IBD 50 ETF (FFTY) closed just above the break-even level. iShares Expanded Software Technology Fund (ETF)IGV) increased by 0.1%. VanEck Vectors Trading Semiconductors Inc.Trait) by 1.2%, with NVDA stock occupying the first place.
The ARK Innovation ETF (reflecting more speculative stocks)arkETFs rose 0.4% and ARK Genomics ETFs (kick back) partially finished lower. Tesla stock is the #1 stock in Ark Invest’s ETFs. PATH stock is also a top 5 stock for Cathie Wood’s Ark.
SPDR S&P Metals & Mining Fund (XME) by 0.7%. US Global Gates ETF (Planes) sank 1.3%. SPDR S&P Homebuilders ETF (XHB) by 0.5% after falling on Tuesday. Energy Select SPDR ETF (xle(pushed up and SPDR fund for the selected healthcare sector)XLV) fell 0.5%.
SPDR Fund for Selected Industrial Sector (xli) decreased by 0.4%.
Financial Select SPDR ETF (XLF) down less than 0.1% for the SPDR S&P Regional Banking Fund (ETF)Cree) and decreased by 2.3%. Moody’s noted the risks faced by regional banks as the commercial loans mature over the next 18 months.
Top five Chinese stocks to watch right now
Apple’s stock fell 3.6% to 182.91, below its 50-day moving average, ending a seven-session winning streak. AAPL stock has a buy point of 198.23 of the base of the cup.
The Wall Street Journal reported, citing sources, that China has ordered officials in central government agencies not to use iPhones or other foreign phones at work. This comes a few days after the Chinese company, Huawei, revealed a phone that supports 5G networks without any banned American chips. China is a huge market for Apple, which is trying to diversify its production somewhat from that country. Apple will unveil the iPhone 15 at an event on September 12th.
Nvidia stock fell just over 3% to 470.61, down to its 21-day average and above 50-day average. Graph movement still looks healthy. A strong bounce from here could provide an entry for NVDA, perhaps above the July 14th high of 480.88.
On the flip side, if Nvidia stock drops below the 50-day line, it would be a bad sign of an AI-led market rally.
Tesla fell by 1.8% to 251.92, returning below the 50-day line but finding support at the 21-day level. This follows Tuesday’s rebound of 4.7% and Friday’s decline of 5.1%.
TSLA stock has a buy point of 299.29 from the consolidation dating back to July 19th. But a decisive move above the 50-day line would provide an early entry, with the Aug 31st high at 261.18 as the defining catalyst.
Market rally analysis
The S&P 500 fell below its 50-day moving average, with the Nasdaq paring losses to finally close above its 50-day moving average. Meanwhile, the Dow Jones and Russell 2000 are now well below the 50-day line.
So does the Invesco S&P 500 Equal Weight Fund (ETF).RSPwhich fell 0.3% after falling 1.2% on Tuesday.
The 50 day line seems to be particularly important for this rally in the market. The major indices suffered a significant bearish reversal at the 50-day line on Aug. 24 after Nvidia’s earnings. Three sessions later, the market staged a follow-up day, with major indices once again rising above the 50-day mark.
The Dow is now below the intraday low it hit on the follow-up day on August 29. The S&P 500 is not far behind doing the same, while the Nasdaq has a bit more room to go. A close for the S&P 500 and Nasdaq below their FTDs – which could also coincide with a critical 50-day break – would be a bearish signal. Research shows that 90% of market rally eventually fails in such cases.
The losers beat the winners again on Wednesday.
Energy stocks have performed reasonably well, because oil prices have continued to rise. Some growth stocks are still charting well, including Nvidia and a number of software names.
But many areas that seemed interesting are facing difficulties, including the housing, industry, construction and infrastructure sectors.
In the bullish scenario, the recent move provides a jolt, and major indices and major sectors will rebound quickly. Leading stocks may have an opportunity to form handles, or move into a position with an upward relative strength line.
However, further losses in the major indices may push the market upwards into an “uptrend under pressure”.
Treasury yields are likely to continue to drive stock market action. It’s hard to see the market rally going well if the 10-year yield hits a long-term high.
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What are you doing now
With the market’s rally fading this week and few buying opportunities available, investors didn’t have much reason to increase exposure.
You can choose to reduce exposure, depending on your own strategy or how successful individual placements are. If you buy shares on the August 29 FTD or the next two sessions, your prices are likely to be flat to modestly low, at least out of the energy range.
But the market in general is waving yellow flags at the moment, not a bright red alert.
Many stocks are still on the rise, even some names like Tesla which fell on Wednesday. So keep working on your watchlists.
Read the big picture every day to stay on top of the market trend, leading stocks and sectors.
Please follow Ed Carson on X/Twitter @IBD_ECarson For stock market updates and more.
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