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Dow Jones Futures: The Market Continues To Rise, But Here’s Why The S&P 500 Could Pause


Dow Jones futures moved higher early Wednesday, along with S&P 500 and Nasdaq futures, with Target earnings the focus. The strong stock market rally on Tuesday morning faded, quickly turning mixed after a Russian-made missile hit Poland.




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Target (TGT) led Wednesday morning earnings, while chip giants Nvidia (NVDA) made a big appearance on Wednesday night.

Stock markets rallied on Tuesday morning after another normal inflation report. Walmart (WMT) income is also helped. Warren Buffett’s Berkshire Hathaway also revealed that it has taken a major new position in the business Taiwan Semiconductor (TSM).

The main indexes reduced their gains somewhat, but then quickly switched to the opposite of the Russian missile news. But the Dow rallied to turn positive again.

Polish Missile Accident

At midday Tuesday, stocks wobbled by news that a Russian missile had hit Przewodow, a Polish village just across the border with Ukraine, killing two people. According to Western officials, the crash was caused by a Ukrainian air defense system, the Wall Street Journal reported on Wednesday.

Ignoring the rocket crash in Poland, the market rally could pause after a strong rally and the S&P 500 nearing a key resistance level.

Still, MercadoLibre (MELI) and Pure storage (PSTG) erase buy points on Tuesday, although PSTG stock fell officially for the second straight session.

Retail income

Target, by Lowe (SHORT) and Company TJX (TJX) reported earnings early Wednesday, along with October retail sales. That follows the Dow Jones giant Walmart and warehouse at home (HD) earnings at the beginning of Tuesday. WMT stock rose 6.5% on strong earnings, guidance and massive buybacks, breaking out of a buy with a handle. HD stock is up 1.6%, trying to rally.

Target earnings are much lower than views, although sales are slightly below views. The discount giant warned of the fourth-quarter holiday season, saying spending patterns changed in October, at the end of the fiscal third quarter.

Target stock has fallen more than 10%. TGT stock was up 3.6% on Tuesday, but hit resistance at the 200-day line, close to a base buy bottom. WMT stock, which spiked after Tuesday’s results, fell slightly.

Top views for Lowe’s earnings and sales. The home improvement giant raised its full-year revenue and EPS targets. LOW stock was up 4% early Wednesday. Lowe’s advanced 2.15% after Tuesday’s Home Depot earnings, operating on a bottoming basis.

TJX stock up 2.9%, still in 10-month range cup with handle basis.

Nvidia reported on Wednesday night. Nvidia stock rose 2.3% on Tuesday, adding to its massive gains over the past month that boosted the chip sector. Strong earnings and guidance from Nvidia, as well as from the chip equipment giant Application materials (amateurs) on Thursday night, which will be critical to the broader market and industry recovery.

The video embedded in this article discussed Tuesday’s market rally and analyzed MELI, Pure Storage, and Albemarle (ALB).

MercadoLibre Securities participated IBD Rankings and it’s Tuesday IBD shares of the day. ALB stock is on the Leaderboard watchlist. MercadoLibre and PSTG stocks are on SwingTrader. Pure storage is on IBD 50.

Dow Jones Futures Today

Dow Jones futures are close to fair value. S&P 500 futures fell and Nasdaq 100 futures fell 0.1%.

The yield on the 10-year Treasury note fell 2 basis points to 3.78%.

amazon.com (AMZN) began cutting corporate and tech staff on Tuesday, according to LinkedIn posts from affected Amazon employees. The e-commerce and cloud computing giant is said to have plans to cut 10,000 jobs. AMZN stock fell 1% overnight.

On Tuesday night, former President Donald Trump launched his candidacy for the 2024 White House.

October retail sales are due at 8:30 a.m. ET. Economists expect the Commerce Department to report a 1% increase, or just 0.2% excluding autos and gas.

Remember that action overnight in future index and other places that don’t necessarily translate into actual transactions the next time stock market meeting.


Join IBD experts as they analyze stocks that could act in the stock market rally on IBD Live


Stock market recovers

The stock market rebounded strongly as the producer price index was lower than expected, with core PPI unchanged from September. Walmart earnings also helped. TSM stock spiked 10.5% on Tuesday night’s news that Warren Buffett had bought shares. Buffett’s Berkshire also takes on new positions as well as new shares in the company Louisiana-Pacific (LPX) and Jefferies (JEF).

But the major indexes pared gains, with the Dow briefly turning negative following reports of Russian missiles hitting Poland.

The Dow Jones Industrial Average rose 0.2% on Tuesday stock market trading, even if WMT and Home Depot stock support it. The S&P 500 index rose 0.5%. The Nasdaq Composite Index rose 1.45%. The Russell 2000 small-cap index rose 1.5%.

The yield on the 10-year Treasury note fell 7 basis points to 3.8%. The US dollar also fell.

U.S. crude oil prices rose 1.2% to $86.92 a barrel after surging more than 3% shortly after news of the Russian missile. Natural gas futures rose 1.7%.

ETFs

Among the best ETFsIBD 50 Innovator ETF (FFTY) increased by 1.4%. iShares Expanded Tech-Soft Sector Sector ETF (IGV) increased by 2.3%. VanEck Vectors Semiconductor ETF (SMH) spiked 3.15%, with Taiwan Semi and Nvidia stockpiling huge components, along with AMAT.

SPDR S&P Metals & Mining ETF (XME) increased by 0.85%. SPDR S&P Homebuilders ETF (XHB) rose 2.1%, with HD and Lowe’s both holding substantial shares. Energy Select SPDR ETF (XLE) is up just over 1% and the Financial Select SPDR ETF (XLF) increased by 0.2%. SPDR Foundation for healthcare sector (XLV) decreased by 0.1%.

Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) rose 2.7% and the ARK Genomics ETF (ARKG) just above breakeven.


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Stocks near the buy point

MELI stock rose 6.4% to 1,020.68, erasing a cup-with-handle buy point of 1,018.10. MercadoLibre volume is below normal, but the recent consolidation has seen some gains on above-average volume. The Latin American e-commerce giant has strong earnings growth.

PSTG shares rose 1.6% to 31.56. On the day, Pure Storage hit 32.47, surpassing the 32.07 cup-with-handle buy point for the second straight session but did not close above that point, according to MarketSmith. PSTG stock ended up having an early entry point of 32.57.

The data storage company also experienced strong earnings growth.

Analysis of market recovery

The stock market rally started off strong on Tuesday, buoyed by the PPI inflation report. But the major indexes pulled back from intraday highs, then turned mixed on reports of the Polish missile attack.

Perhaps the inflation/Fed story has changed. But that doesn’t mean the major indexes can’t hit resistance, especially after a recent strong rally. And, as Tuesday’s action showed, there is always the possibility of geopolitics or other wild cards to reverse the market trend.

The Dow Jones and Russell 2000 have both surpassed their 200-day moving averages. The S&P 500 is approaching the 200-day line, where it hit stiff resistance on Aug. 16.

Nasdaq is moving from the 50-day line to the 200-day line, but there is still a long way to go.

Notably, the Invesco S&P 500 Equal Weight ETF (RSP) lies just above its 200-day line. Direxion Nasdaq-100 Equal Weighted Index ETF (QQQE) is approaching that long-term critical level.

Of course, just because one could argue that the major indexes are “due” to a pause or a pullback or a bounce, and the market will do what it will.

The tech giants are recovering with the market, but certainly not leading. Many giants bottomed out in a bear market just last week. The only exception is Nvidia stock, which has rallied sharply over the past month. But even the chip giant is still working towards its 200-day frontier.

However, a lot of areas are showing strength.

Solar manufacturers, networks, e-contractors and some health product companies are doing well. So are some selected chips, with others trying to set up. A wide range of housing-related stocks are looking interesting, from builders to suppliers to housing retailers.

Other retailers look good, including WMT stock, Wholesale of BJ (BJ) and Great beauty (ULTA). BJ’s report on Thursday.

Trucking companies are going up, as investors bet the worst is over, or at least priced in, for shipping stocks.

Biotech and health insurers have paused or withdrawn but are generally in good shape. Energy stocks are also doing well, although many look to expand.


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What to do now

The major indexes are looking strong, many stocks are showing buy and setup signals. Inflation data may have reached a tipping point, increasing the likelihood that the Fed’s rate hikes will slow and – perhaps – end the tightening in the not too distant future.

Therefore, investors should take advantage of the current market rally. But they want to be cautious about how much they add in the short term, given the possibility of a market drop or resistance.

Don’t chase expansion stocks. Be wary of buying stocks that extend significantly above their 50-day moving averages, even if they are in the official buy zone. Don’t be too focused. A portfolio focused on lithium shares such as Albemarle will be burned on Tuesday.

But work on those watchlists, stay engaged, and get ready for action.

Read Big picture every day to stay in sync with market trends and top stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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