Dow Jones futures will open Sunday night, along with S&P 500 futures and Nasdaq futures. The stock market rally posted modest losses last week but is struggling to find support as Wednesday’s rebound failed on Friday.
The S&P 500 Index fell below its 50-day moving average. Apple (AAPL) It also broke the 50-day line, but industrialists, including the giant Dow Jones Caterpillar (CAT), as well as miners, steelmakers and materials companies were the big losers.
But growth stocks had a solid week overall. Microsoft (MSFT), unlike Apple stock, Apple’s tech titan, rallied from its 10-week line. Lowercase held a key support.
Oil and gas stocks had a great week, with Devon Energy (DVN) clearing an early entrance and flirting with a total leak. Special footwear sets Crocs (CROX), Outdoor deckers (PLATFORM) and Boot Barn (BOAT) was recovered, with the last two actionable. Chipotle Mexican Grill (CMG) is among several restaurant chains trying to get back on the investment menu.
But therein lies the problem. Will the stock market rally find support at current levels or will the pullback turn into an outright correction?
Dow Jones Futures Today
Dow Jones futures open at 6 pm ET Sunday. So S&P wants 500 futures and Nasdaq 100 futures xx%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.
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Stock market rally
The stock market rally had a solid half of the week, but it started badly and ended that way.
The Dow Jones Industrial Average was down 0.1% in trading last week, after already falling below its 50-day line. The S&P 500 Index was down 0.6%. The Nasdaq composite fell 0.5%, thanks to a 0.9% decline on Friday. The small-cap Russell 2000 was up 0.4%.
Apple shares fell 1.95% last week, almost all of Friday, weighing on the Dow Jones, S&P 500 and Nasdaq composite. Microsoft pulled back on Friday, but was still up 1.4% for the week, giving the major indices a boost.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.75% last week, rebounding from previous notable losses. The Innovator IBD Breakout Opportunities ETF (COMBAT) yielded 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) was down 0.1%, even with MSFT stock as the main component. The VanEck vectors semiconductor ETF (SMH) lost 0.5%, with AMD shares a major component.
SPDR S&P Metals & Mining ETF (XME) fell 5.3% and the Global X US Infrastructure Development ETF (TO PAVE) fell 2.2%. US Global Jets ETF (JETS) increased by 2.4%. SPDR S&P Homebuilders ETF (XHB) skin 0.85%. The Energy Select SPDR ETF (XLE) rose 3.2%, with DVN shares as a component. The Financial Select SPDR ETF (XLF) ended up just below breakeven.
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Market rally analysis
Last week’s losses in the major indices were pedestrian, but where and how they occurred was disappointing. On Wednesday, the S&P 500 found support at its 50-day line, just where you’d expect it, as the broader stock market rally rebounded. On Thursday it appeared to show some determination as the indices cut or erased intraday losses. But Friday’s pullback, with the S&P 500 index closing just below its 50-day line, suggested a possible change in character.
On the upside, growth stocks performed well overall, with highly valued ARK-type stocks strengthening late in the week. The Russell 2000 rebounded from its 200-day line and closed above its 50-day line again. Those suggest that the stock market recovery is in better shape than the S&P 500 and other major indices indicate.
On the other hand, growth and small caps gained ground against the low weekly losses of the main indices. If the latter breaks significantly below the 50-day line, which is clearly a risk now, then it will be a stiff challenge for growth names to keep climbing, especially high-flying ones like Upstart (UPST) who have had great races in recent weeks.
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What to do now
This is why IBD warned investors to add exposure cautiously on Wednesday and Thursday, despite a number of promising buying opportunities. The direction of the short-term market rally was changing, and still is. Some recent purchases may stick, while others may seem shaky.
Investors should be less aggressive again. For investors who cut exposure during the pullback and didn’t contribute much during last week’s short-lived bounce, a wait-and-see approach. Investors who are fully invested, or who made numerous purchases in the middle of the week, may consider cutting back, reducing losers, and making partial gains.
Whatever your particular situation, review your current stocks and modify your watch lists. Then come up with a game plan for what to do if the market rally strengthens, offers new buying opportunities, or continues to pull back.
Stay flexible. With the market recovery seemingly at an inflection point, it may be bullish in the morning and bearish at the close.
Read The Big Picture every day to stay in sync with the direction of the market and the major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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