Dow Jones futures fell Sunday night, along with S&P 500 futures and Nasdaq futures with rising China Covid infections, lockdowns and protests in focus. Key economic data and notable earnings reports are due during the week.
The stock market rally had solid gains in the holiday-shortened Thanksgiving week. The Dow Jones hit a seven-month high. But the S&P 500 index is coming up to its 200-day moving average, a key resistance area. Several economic reports loom next week, including the November jobs report. Those will be key for Fed rate expectations.
So investors may want to be cautious about adding much exposure in the very short term.
Data storage firm Pure Storage (PSTG), Chinese e-commerce giant Pinduoduo (PDD), Dollar General (DG) and Ulta Beauty (ULTA) report earnings this coming week. PDD stock, Dollar General, Pure Storage and Ulta Beauty are all near buy points as well.
Salesforce.com (CRM) and Snowflake (SNOW) headline a number of software earnings reports, with guidance key for the entire sector and the IT spending outlook. Snowflake is expected to report its first-ever quarterly profit. But SNOW stock, and most of these other software plays, are well off highs.
Megacaps also are still struggling. Tesla (TSLA) rebounded this week, but from bear market lows. Amazon.com (AMZN) is still below most moving averages. Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA) and Google-parent Alphabet (GOOGL) are all above their 50-day lines, but below their 200-day.
Chinese protests are spreading rapidly against the government’s strict zero-Covid policy, as lockdowns and severe restrictions ramp up amid record coronavirus infections. It’s the greatest defiance vs. President Xi Jinping since he took power in 2012. The lockdowns and protests are further challenges to the struggling Chinese economy.
U.S. holiday shopping appears to be decent, at best. Black Friday online sales rose 2.3% vs. a year earlier to a record $9.12 billion, amid somewhat-sparse in-person crowds. Apple products are in demand.
The Biden administration eased Venezuela oil sanctions, letting Chevron (CVX) produce crude in the country for the next six months and export it to the U.S. It’s a big shift in policy. That comes as the U.S. may soon halt releases from the much-reduced Strategic Petroleum Reserve.
Macau has tentatively renewed 10-year casino licenses for Wynn Resorts (WYNN), Las Vegas Sands (LVS), MGM Resorts (MGM) and Melco Resorts & Entertainment (MLCO). That lifts a big uncertainty for Macau-focused casino operators, still struggling with China’s Covid restrictions. Final terms should be set before Jan. 1.
Dow Jones Futures Today
Dow Jones futures fell 0.5% vs. fair value. S&P 500 futures declined 0.7% and Nasdaq 100 futures sank 0.8%.
The 10-year Treasury yield declined 6 basis points to 3.65%.
Crude prices fell more than 2% to a 2022 low on China concerns and Chevron set to pump crude in Venezuela. Copper futures sank nearly 2%.
Protests vs. China’s Covid curbs could be affecting Dow Jones futures and commodity prices. Hong Kong’s Hang Seng sank 2%, but off early lows.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally
The stock market rally had solid gains during Thanksgiving week.
The Dow Jones Industrial Average popped 1.7% in last week’s stock market trading. The S&P 500 index climbed 1.5%. The Nasdaq composite advanced 0.8%. The small-cap Russell 2000 rose 1%.
The 10-year Treasury yield fell 11 basis points to 3.71%.
U.S. crude oil futures slumpe4.8% to $76.28a barrel last week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 2%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 1.8%, with Microsoft and CRM stock the two biggest holdings. The VanEck Vectors Semiconductor ETF (SMH) edged up 0.8%, with NVDA stock a major component.
SPDR S&P Metals & Mining ETF (XME) jumped 4% last week, just below a potential entry. The Global X U.S. Infrastructure Development ETF (PAVE) rose 1.8% to a seven-month high. U.S. Global Jets ETF (JETS) ascended 2.3% in a good week for travel plays. SPDR S&P Homebuilders ETF (XHB) advanced 1.85%. The Energy Select SPDR ETF (XLE) edged up 0.2%, close to record highs. The Financial Select SPDR ETF (XLF) gained 2% and Health Care Select Sector SPDR Fund (XLV) rallied 1.8%, both to seven-month bests.
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Apple Stock, Megacaps
Apple stock fell 2.15% last week to 148.04, with most of that coming Friday as China’s Covid lockdowns take a toll on iPhone production. AAPL stock has been finding support at the 50-day line but the 200-day line has been a resistance point.
Microsoft stock climbed 2.6% last week to 247.49, moving further above its 50-day line. But shares are still well below the 200-day. Nvidia stock jumped 5.6%, far above the 50-day line but still has work to do to recover its 200-day line. Google stock edged up 0.1%, just above its 50-day.
AMZN stock dipped 0.7%, below even its 21-day line, still close to its bear-market lows.
Tesla stock rebounded from Wednesday’s bear market low of 166.19, closing the week up 1.5%, at 182.56. But it’s still well below the 21-day, 50-day lines and especially the 200-day.
Stocks Near Buy Points With Earnings Due
Pinduoduo earnings are due before Monday’s open. Pinduoduo stock sank 6.4% to 65.69, but after a huge rally over several weeks. PDD stock has a 72.84 cup-with-handle buy point, and is currently finding support near its fast-rising 21-day line. But the base is 47% deep. And China risks are high, with renewed lockdowns squeezing an already-struggling economy. Growing unrest at Covid restrictions could cast a pall over Chinese socks.
Pure Storage earnings are due late Wednesday. PSTG stock dipped 0.9% to 30.46 last week, continuing to hold its 21-day line. It has a cup-with-handle base with a 32.07 buy point, though investors might use 32.55 as a new handle entry after a brief breakout attempt fizzled. Pure Storage stock now has a five-weeks-tight pattern with a 32.55 buy point. Meanwhile, NetApp earnings are Tuesday night, with the storage giant back above its 200-day line.
Dollar General earnings are due early Thursday. DG stock dipped 0.2% to 257.30 last week, holding up well as rival Dollar Tree (DLTR) tumbled on weak guidance. Investors could still use a 261.69 cup-base buy point, according to MarketSmith analysis.
Ulta Beauty reports late Thursday. ULTA stock rose 1.8% to 448.46 last week. Shares are extended from a cup-with-handle buy point of 426.99 on a daily chart. On a weekly chart, Ulta Beauty is hovering around a cup base buy point of 451.40. But the recent gains have come on light volume, while ULTA stock is extended from its 50-day line.
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Market Rally Analysis
The stock market rally had a solid week, continuing to bounce from key support levels. On Friday, the Dow Jones cleared its Aug. 16 peak to reach a seven-month best. The Russell 2000 just reclaimed its 200-day line on Friday.
During the week, the laggard Nasdaq bounced from its 21-day line, but is still some distance from its 200-day. With Apple, Microsoft, Tesla stock and software makers so far off highs, that’s not really a surprise.
The S&P 500 also made progress, closing back above the 4,000 level. It’s now within 1% of its 200-day moving average. On Aug. 16, the S&P 500 came within one point of that key level, but then sold off for nearly two months. A decisive move above the 200-day line, which coincides with a declining-tops trendline, would signal that the current uptrend is more than just a bear market rally.
But key economic reports loom. On Wednesday, the October JOLTS report will show job openings, with Fed chief Jerome Powell speaking later in the day. On Thursday, the PCE price index, the Fed’s favorite inflation gauge, will be released, along with jobless claims and the ISM manufacturing index. The November jobs report is due on Friday.
Tame inflation and labor data will reinforce expectations for a smaller 50-basis-point Fed rate hike on Dec. 14 and perhaps signal further slowing in the pace of rate increases early next year. Hot figures could upend Fed pivot hopes yet again.
A positive market reaction to the economic data could trigger a flurry of buy signals. A lot of stocks from a variety of sectors are setting up.
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What To Do Now
The stock market rally is in good shape. Investors should be taking advantage of this uptrend with modest exposure.
In the very short term, investors may want to be cautious about making new buys. The market rally faces a big technical test with inflation and jobs reports likely to play a key role in how that plays out. China’s Covid lockdowns and their fallout are another big wild card.
But it’s definitely a time to be preparing for new buys. Build up those watchlists, making sure to find potential buys from a wide variety of sectors. Then stay engaged with the market action. Be ready to make new buys or to scale back depending on the market action.
Read The Big Picture every day to stay in sync with the 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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