Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally had strong gains last week, breaking above some key resistance. Techs pulled back Friday on Snap (SNAP) and other poor earnings.
Apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL), Amazon.com (AMZN) and Facebook parent Meta Platforms (META) headline a massive week for earnings.
META stock and Google sold off hard Friday on Snap results and lack of guidance. Microsoft stock fell back to its 50-day line. Amazon merely trimmed big weekly gains. But Apple stock is the one of the five even close to its 200-day line, and it has no obvious buy point in sight.
Meanwhile, the Federal Reserve meets, with another big 75 basis-point rate hike likely coming Wednesday. Guidance for future moves will be key. Investors have started to downsize the September rate hike, with limited tightening after that. That's in large part to the economy rapidly slowing, perhaps even falling into a recession. A recession, along with still-high inflation, is not a great mix for corporate profits.
Fed Recession May Already Be Here; What That Means For S&P 500
While the recent action in the major indexes has been promising, investors should still be cautious as they add exposure.
Not many leading stocks have been flashing buy signals. Meanwhile, several promising stocks have seen sudden sell-offs, including Dollar Tree (DLTR), Lantheus (LNTH), Agilon Health (AGL) and Li Auto (LI), forcing tough decisions for investors.
LNTH stock is on IBD Leaderboard, while Agilon exited Friday. Li Auto stock and Agilon are on the IBD 50. MSFT stock and Google are on IBD Long-Term Leaders.
The video embedded in the article reviewed the important market action, while also analyzing Cross Country Healthcare (CCRN), Li Auto and DLTR stock.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had strong weekly gains, even with Friday's retreat.
The Dow Jones Industrial Average rose 2% in last week's stock market trading. The S&P 500 index gained 2.6%. The Nasdaq composite jumped 3.3%. The small-cap Russell 2000 leapt 3.7%.
The 10-year Treasury yield tumbled 15 basis points to 2.78%, plunging 25 basis points on Thursday-Friday. The Treasury yield curve is inverted from the one-year to the 10-year. The six-month T-bill rate, at 2.94%, is significantly above the 10-year Treasury yield. All of that reflects growing recession risks.
U.S. crude oil futures fell nearly 3% to $97.59 a barrel last week.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 0.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.45%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 5.4%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) ran up 5.6%.
The SPDR S&P Metals & Mining ETF (XME) bounced 1.9% last week. The Global X U.S. Infrastructure Development ETF (PAVE) leapt 5%. U.S. Global Jets ETF (JETS) ascended 0.9%. SPDR S&P Homebuilders ETF (XHB) soared 6%. The Energy Select SPDR ETF (XLE) gained 3.7% and the Financial Select SPDR ETF (XLF) 3%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.3%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 4.85% last week and ARK Genomics ETF (ARKG) 1.2%, though both gave up more than half their weekly gains on Friday.
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Stock Shakeouts, Shakedowns
When a leading stock sells off to or below the buy point, investors face a tough decision: hold tight, exit or trim the position. There's not necessarily a "right" answer. Sometimes the stock will bounce right back, others will keep falling — perhaps after briefly bouncing. A more-cautious approach may make more sense in the current volatile market. Buying near the entry can offer a bit more cushion as well.
DLTR stock had been gradually rising in a buy zone this week when it suddenly plunged nearly 5% intraday on Thursday. Shares slightly undercut the 166.45 buy point, but found support at the 21-day line, according to MarketSmith analysis. By the close, DLTR stock was off just under 1%. On Friday, Dollar Tree stock briefly moved out of the buy zone before closing little changed.
LNTH stock hit a record high on Wednesday, just breaking out from a cup base, but closing nearly 14% above the 50-day line. On Thursday, Lantheus stock tumbled 7.8% intraday, though it pared its loss to 3.1%. A quick shakeout? Maybe not. LNTH stock fell 4.5% on Friday.
Agilon stock broke out Thursday from a bottoming base with a 27.12 buy point. But shares tumbled 8.3% to 25.18 on Friday.
Li Auto stock bounced from its 21-day line on July 13 and made solid gains by Monday, July 18. But shares tumbled below the 21-day line intraday Tuesday, though they recovered to close above that key level, down 4.7%. On Wednesday, LI stock sank 3.7%, right at Tuesday's lows. On Thursday, Li Auto nearly reclaimed its 21-day line, but then sold off convincingly on Friday. Ultimately, it was a bearish downside reversal week for the China EV maker.
Market Rally Analysis
The stock market rally made significant strides this past week. The major indexes got above their 50-day and 10-week moving averages, which had been a key stumbling block in recent months.
Weak results from Snap, Verizon (VZ), Seagate Technology (STX) and Intuitive Surgical (ISRG) provided a catalyst for Friday's retreat.
But arguably the market was due for a pullback, especially the Nasdaq and growth stocks. It's better to get that pullback before the full crush of earnings.
If everyone is bullish heading into earnings, that's a recipe for big sell-offs on actual results. That may be especially true this time, with guidance especially unclear with the economy rapidly deteriorating.
Friday's retreat underscores how earnings season is treacherous, and not just for the company. The Snap earnings report slammed Meta and Google stock, along with other online ad-dependent firms and the broader market.
Friday's retreat also shows the risks of bottom fishing, buying beaten-down growth stocks as they race back.
It's possible that the market bottomed in mid-June, but that doesn't necessarily mean it's a quick, easy march to all-time highs and beyond. The market bottomed in late 2002 and late 2008, but didn't make a sustained run for several months.
In addition to tech titans Apple, Microsoft, Meta, Google and Amazon, other notable results this coming week include Exxon Mobil (XOM), Chevron (CVX), Merck (MRK), Pfizer (PFE), General Motors (GM) and Qualcomm (QCOM).
Apple, Microsoft, Merck and XOM stock are all Dow Jones components.
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What To Do Now
Investors should still have, at most, modest exposure. There haven't been many good stocks to buy, and those can be prone to sudden sell-offs. Earnings season and the Fed meeting could send the market, various sectors and individual stocks in all sorts of directions.
So be extra cautious for the next few days. If you do make new purchases, look for early buying opportunities and try to buy as close to those entries as possible.
Keep working on your watchlists. The market rally has shown some strength. You want to be ready to take advantage.
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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