Dow Jones futures edged lower overnight, along with S&P 500 futures and Nasdaq futures.
The stock market suffered significant losses after the August ISM services index unexpectedly rose, pushing Treasury yields and Fed rate hike odds higher. The S&P 500 fell just below its 50-day moving average with the Nasdaq undercutting that key level intraday before just closing above it. The Dow Jones and Russell 2000 slid further below their 50-day lines. The S&P 500 and Nasdaq also are not far from the lows of their Aug. 29 follow-through day.
Dow Jones Futures Today
Dow Jones futures lost a fraction vs. fair value. S&P 500 futures and Nasdaq 100 futures fell 0.1%.
AI stock fell sharply in late trading after C3.ai fell short on Q1 2024 revenue, guided low, on Q2 sales, and withdrew a forecast for non-GAAP profitability by the end of fiscal 2024. C3.ai stock edged up 0.1% to 31.46 on Wednesday, hitting resistance at the 21-day line, well below a falling 50-day. AI stock has fallen back considerably since nearly tripling from early May to mid-June.
CXM stock declined slightly overnight after Sprinklr earnings exceeded forecasts. CXM stock also nudged 0.1% higher Wednesday, to 15.82, holding in range of a 15.50 buy point, according to MarketSmith analysis. Sprinklr stock broke out of the shallow cup base on Tuesday.
PATH stock rose solidly in extended trade after UiPath earnings beat expectations. Shares edged up 0.25% to 16.22 on Wednesday, hitting resistance at the 50-day line. PATH stock has a 19.94 consolidation buy point. But a move over Thursday’s high of 16.58 could offer an early entry, or perhaps breaking a trendline just under 18 could as well.
Stock Market Rally
The stock market rally opened lower, but the losses picked up substantially after 10 a.m. ET, when the ISM services index showed a surprise gain of 1.8 points to 54.5, vs. views for a 0.3 point drop to 52.4.
The Dow Jones Industrial Average fell 0.6% in Wednesday’s stock market trading. The S&P 500 index declined 0.7%. The Nasdaq composite retreated 1.1%. The small-cap Russell 2000 gave up 0.3%.
U.S. crude oil prices rose 1% to $87.54 a barrel, a fresh 2023 closing high. Crude has surged 11% in its current nine-session win streak.
The 10-year Treasury yield rose 2 basis points to 4.29%, after falling to 4.24% before the ISM services index. The 10-year yield has run up 20 basis points in the last three sessions and is now closing in on the long-term high of 4.36% set on Aug. 22.
The two-year Treasury yield, more closely tied to Fed policy, moved back above 5%, up nearly 6 basis points to 5.02%.
Investors still see scant chance of a rate hike later this month, but the odds of a Nov. 1 Fed hike are back to almost 50-50.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) closed just above break-even. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.1%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.2%, with NVDA stock its No. 1 holding.
Reflecting more-speculative story stocks, the ARK Innovation ETF (ARKK) ETF rose 0.4% and ARK Genomics ETF (ARKG) finished fractionally lower. Tesla stock is the No. 1 holding across Ark Invest’s ETFs. PATH stock is also a top-5 holding for Cathie Wood’s Ark.
SPDR S&P Metals & Mining ETF (XME) fell 0.7%. U.S. Global Jets ETF (JETS) sank 1.3%. SPDR S&P Homebuilders ETF (XHB) rose 0.5% after tumbling Tuesday. The Energy Select SPDR ETF (XLE) nudged higher and the Health Care Select Sector SPDR Fund (XLV) retreated 0.5%.
The Industrial Select Sector SPDR Fund (XLI) declined 0.4%.
The Financial Select SPDR ETF (XLF) dipped less than 0.1% The SPDR S&P Regional Banking ETF (KRE) slumped 2.3%. Moody’s cited risks for regional banks as commercial loans mature over the next 18 months.
Apple stock slumped 3.6% to 182.91, back below its 50-day moving average and snapping a seven-session win streak. AAPL stock has a 198.23 buy point from a cup base.
China has ordered officials at central government agencies to not use Apple iPhones or other foreign handsets at work, The Wall Street Journal reported, citing sources. That comes just a few days after China’s Huawei unveiled a 5G handset without any banned U.S. 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 a Sept. 12 event.
Nvidia stock fell just over 3% to 470.61, sliding to its 21-day average and above its 50-day. The chart action still looks healthy. A solid bounce from here could offer an NVDA entry, perhaps above the July 14 high of 480.88.
On the flip side, if Nvidia stock were to fall below the 50-day line, it would be a bad sign for the AI-led market rally.
Tesla stock fell 1.8% to 251.92, back below the 50-day line but finding support at the 21-day. That follows Tuesday’s 4.7% bounce and Friday’s 5.1% tumble.
TSLA stock has a 299.29 buy point from a consolidation going back to July 19. But a decisive move above the 50-day line would offer an early entry, with the Aug. 31 high of 261.18 as a specific trigger.
Market Rally Analysis
The S&P 500 fell below its 50-day moving average with the Nasdaq paring losses right at the close to end above its 50-day. Meanwhile, the Dow Jones and Russell 2000 are now significantly below their 50-day lines.
So is the Invesco S&P 500 Equal Weight ETF (RSP), which sank 0.3% after tumbling 1.2% on Tuesday.
The 50-day line seems especially important for this market rally. The major indexes suffered a big downside reversal at the 50-day line on Aug. 24 following Nvidia earnings. Three sessions later, the market staged a follow-through day, with the key indexes roaring back above the 50-day.
The Dow Jones is now below the intraday low of its Aug. 29 follow-through day. The S&P 500 is not far from doing the same, while the Nasdaq has a little more room. The S&P 500 and Nasdaq closing below their FTDs — which would also coincide with a decisive 50-day line break — would be a bearish sign. Research shows that 90% of market rallies ultimately fail in such cases.
Losers trounced winners once again on Wednesday.
Energy stocks did reasonably well, because oil prices keep climbing. Some growth stocks still have healthy charts, including Nvidia and a number of software names.
But a lot of areas that were looking interesting are struggling, including the housing, industrial, construction and infrastructure sectors.
In a bullish scenario, the recent action is providing a shakeout, and the major indexes and key sectors will quickly rebound. Leading stocks may have a chance to forge handles, or move into position with a rising relative strength line.
But further losses in the major indexes could push the market rally to “uptrend under pressure.”
Treasury yields will likely continue to drive stock market action. It’s hard to see the market rally faring well if the 10-year yield hits fresh long-term highs.
What To Do Now
With the market rally pulling back this week and few buying opportunities available, investors haven’t had many reasons to add exposure.
You might choose to trim exposure, depending on your particular strategy or how individual positions are faring. If you bought stocks on the Aug. 29 FTD or the next couple of sessions, you’re probably flat to down modestly, at least outside of energy.
But the overall market is waving yellow flags right now, not a bright red alert.
Many stocks are still setting up, even some names like Tesla that retreated Wednesday. So keep working on your watchlists.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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