Dow Jones futures were down slightly in extended trading, along with S&P 500 futures and Nasdaq futures. The stock market rally had a flat-to-lower session on Wednesday.
The Nasdaq led declines like Apple (AAPL), parent company of Google alphabet (GOOGL) and Tesla stock have seen big weekly losses. Apple and Google shares, meanwhile, broke below some support levels Tesla (TSLA) is near its bear market lows.
The sideways movement of the past few weeks has challenged buying for strength. Fluctuating markets chop up investors. It’s not a good time to add exposure.
That’s what the Pentagon said late Wednesday Amazon.com (AMZN), Google, Microsoft (MSFT) and oracle (ORCL) received cloud computing contracts that could total $9 billion by 2028. In 2019, the Department of Defense awarded a $10 billion cloud computing contract, but canceled that deal in 2021 over Amazon’s objections.
The four tech giants showed little change in after-hours trading.
Dow Jones futures today
Dow Jones futures are down 0.2% from fair value. S&P 500 futures fell 0.3% and Nasdaq 100 futures fell 0.4%.
The 10-year government bond yield rose 4 basis points to 3.45%.
Crude oil futures edged higher.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally traded slightly lower for most of Wednesday’s session, ending generally in the red.
The Dow Jones Industrial Average rose less than two points in trading on Wednesday. The S&P 500 index fell 0.2%. The Nasdaq Composite fell 0.5%. Small-cap Russell 2000 fell 0.3%.
US crude prices fell 3% to $72.01 a barrel, slipping further on concerns over global demand. Gasoline futures fell 3.4% to a one-year low. Natural gas prices fell 4.6% in five sessions after a sharp decline.
The 10-year government bond yield fell 10 basis points to 3.41%, the lowest in almost three months.
The inverse relationship between stock and bond returns is declining as US Treasury yields are now falling on recession fears rather than easing inflationary pressures. A tame December 13 CPI report would still be hailed. While a half-point rate hike on December 14 looks very likely, progress on inflation would raise hopes for smaller rate hikes in early 2023 and an earlier end to tightening. That would reduce the risk of a slump or at least a hard landing.
Among growth ETFs, iShares Expanded Tech-Software Sector ETF (IGV) fell 0.5%. The VanEck Vectors Semiconductor ETF (SMH) closed just below breakeven. Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) fell 0.8% and ARK Genomics ETF (ARKG) rose 0.3%. TSLA stock is a key position in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) is down 0.3% and the Global X US Infrastructure Development ETF (PAVE) is down a fraction. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF (XHB) is up 1.8%. The Energy Select SPDR ETF (XLE) is down 0.2% and the Financial Select SPDR ETF (XLF) is down 0.4%. The Health Care Select Sector SPDR Fund (XLV) rose 0.8%.
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Apple stock and Google stock
Apple shares fell 1.4% to 140.94 on Wednesday, the lowest since Nov. 10. So far this week, AAPL stock is down 4.65%, undercutting its 50-day moving average. Tech titan Dow Jones is nearing its October 13 low of 134.37, but is still some way off its June 16 bear market low of 129.04.
Google stock fell 2.1% to 94.94, below its 50-day moving average. GOOGL stock is down 5.4% so far this week, erasing gains from the previous three weeks. Shares are still comfortably above their Nov. 3 bear market low of 83.34.
Tesla shares slipped 3.2% to 174.04 on Wednesday, nearing the bear market low of 166.19 set on Nov. 22. Shares are down 10.7% so far this week. TSLA stock is down more than 50% in 2022.
On Wednesday, Tesla cut prices in China by 6,000 yuan for existing cars. Along with insurance subsidies, free charging and other goodies, Tesla is offering over 21,000 yuan in incentives for cars in the parking lot. This follows a general price cut in China in late October. And it comes ahead of government EV subsidies, which end on December 31, which should boost demand. This also comes amid widespread reports — denied by Tesla — of looming production cuts in Shanghai.
Meanwhile, Tesla will reportedly bring radar back into its vehicles in early 2023. Elon Musk retired the radar in 2021, saying sight-only is better for self-driving, unlike almost everyone else working on autonomous driving.
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Analysis of the market rally
The stock market rally continued its retreat, although the technical picture did not change significantly.
The Nasdaq tested its 50-day moving average a day after falling below its 21-day moving average. Apple stocks, Google and Tesla weighed on big-cap indices, but the underlying trend was also slightly down.
Major indices generally trended higher from their Oct. 13 lows, notably the Dow Jones and the S&P 500. The market rally appeared to be gaining momentum late last week, with the S&P 500 above its 200-day moving average and the Dow Jones hit a seven-month high.
But with the recent pullback, the major indices and Russell 2000 are basically where they were in early November or late October.
Sideways markets are among the most dangerous for investors, especially when volatility is moving up and down. There is just enough strength upside to attract buyers, but then the market swings down for a while. That’s forcing investors to either cut losses when they’re small — with a decent chance of stocks rallying — or risk a much larger decline.
The current choppy market rally has an additional hurdle. Most of the rally was made in a handful of one-day sessions, making it difficult to have even mini uptrends to build profits in new positions.
Time the market with IBD’s ETF market strategy
The stock market rally has met resistance and is testing some key levels, but is not yet seriously damaged. If you have a modest exposure to positions that work, there is no need to exit. Of course, taking partial profits is never a bad idea in this market.
But there’s a strong chance that anyone who bought stocks over the past few weeks when they broke out or flashed early buy signals has deserted those stocks. In a sideways choppy market, when stocks are starting to look interesting, they could be about to peak.
Investors should be cautious about adding exposure until the market clears the recent trading range, with the S&P 500 sitting crucially above its 200-day moving average. That may not happen until after next week’s CPI inflation report and the Fed meeting.
Even then, investors should slowly add to their positions in case the major indices fall back from short-term highs.
But keep working on those watch lists. Industrial and infrastructure games are looking good, along with a variety of medical products. Some brokerage firms hover around buy points. Chip equipment names are showing relative strength, with a number of semiconductor stocks holding up well.
Read The Big Picture every day to keep up to date with 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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