Dow Jones futures were up slightly after hours, along with S&P 500 futures and Nasdaq futures. Palo Alto Networks and Coinbase reported late on Tuesday, with Wingstop and chip giant Nvidia on Wednesday.
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The stock market rally lost more ground, with the Dow Jones breaking below a key level while the S&P 500 and Nasdaq retreated to major support. Yields on 10-year government bonds continued to rise, approaching 4% again amid stronger-than-expected economic data and disappointing data DIY store (HD) Guidance.
Investors should take a more defensive stance, at least in the short term.
Palo Alto Networks (PANW) and Toll Brothers (TOL) reported the results late Tuesday. So did three major Ark Invest holding companies: Exact Sciences (EXAS), Crispr therapies (CRSP) and Coin base (COIN).
Wing stop (WING), TJX Cos. (TJX) and Baidu (BIDU) reports early Wednesday. Wingstop fell back below a buy point on Tuesday, while TJX shares are not far from an early entry within a shallow base.
Nvidia (NVDA) earnings loom on Wednesday night, a key report for the chip sector and overall market rally.
WING stock is on IBD Leaderboard and the IBD 50.
The video embedded in the article discusses Tuesday’s market sell-off and analysis Car life (ALV), Lamb Weston and Wingstop.
Dow Jones Futures Today
Dow Jones futures rose 0.2% from fair value. S&P 500 futures rose 0.25% and Nasdaq 100 futures rose 0.4%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Main income
PANW shares rose in late trading after Palo Alto earnings beat fiscal second quarter ratings, but the outlook was mixed. Palo Alto shares fell 1.4% on Tuesday to 166.89 and retreated toward the 200-day line. A decisive move above last week’s high of 177.60 would clear resistance going back several months and provide entry.
TOL stock rose modestly after hours as fiscal Q1 earnings topped views. Toll Brothers shares fell 2.6% to 55.70 on Tuesday, approaching the 50-day and 10-week lines. After nearly doubling from October last year to February 2, equities have retreated as government bond yields have recovered. But TOL stock has a buy point of 62.71 cups with handle.
EXAS shares fell modestly in overnight trading after Exact Sciences topped fourth quarter views but provided in-line guidance for 2023. Exact Sciences shares could test the 50-day line Wednesday after falling 3.5% to 61.26 on Tuesday.
The CRSP stock increased slightly during extended action. Crispr reported a smaller-than-expected Q4 loss and said it is on track to complete FDA filing by the end of Q1 for its gene-edited therapy for the treatment of sickle cell disease and transfusion-dependent beta thalassemia. Shares of Crispr fell 4.8% on Tuesday to 62.07, below the 50-day mark.
COIN shares fell overnight as Coinbase reported a slightly smaller than expected Q4 loss as revenue fell 75%. COIN shares fell 8.4% on Tuesday to 46.63, back toward 200-day and 21-day lines. Investors could see a decisive rebound in these levels as a kind of aggressive entry.
WING shares fell 4.2% on Tuesday to 166.21 in heavy volume, falling below a buy point of 169.04 cup-with-handle released last week, according to MarketSmith’s analysis.
TJX shares fell 1.3% to 78.82, slightly below the 50-day line in a 6% deep flat base. The official buy point is 83.23, but a strong move above the 50-day line would also break a trendline entry.
BIDU shares fell 0.6% on Tuesday to 140.82, below the 21-day line but above the 50-day line.
Nvidia shares fell 3.4% on Tuesday to 206.55, just below the 21-day line. Microsoft (MSFT) has announced that its Xbox games will be on Nvidia’s clouding gaming service. NVDA stock is expanding from a low but on a tight three-week pattern with a buy point of 230.59. Late Wednesday, the chip giant will likely have a hold on a daily chart with the same entry, for a consolidation going back to April. But the Nvidia stock would still expand from the 50-day/10-week lines.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally started lower on Tuesday, with selling quickly accelerating on S&P Global’s flash read of the US economy, with the general index and services gauge both moving above the break-even 50 level.
The Dow Jones Industrial Average fell 2.1% during Tuesday’s stock trading. The S&P 500 index lost 2%. The Nasdaq composite fell 2.5%. The small-cap Russell 2000 fell 2.9%.
US crude oil prices fell 0.2% to $76.16 a barrel, extending last week’s heavy losses. Natural gas futures fell 8.9% on Tuesday and 19% over the last four sessions.
Copper prices recovered by 2.9%.
The yield on 10-year Treasury bills rose 13 basis points to 3.95%. That’s the highest since November and 62 basis points higher than the February 2 low. Part of this reflects optimism that the US will not slide into recession. But that also means inflation is likely to be more stubborn and the Fed could become more aggressive. Markets now see at least an 80% chance of three more quarter-point rate hikes, with a small but rising chance of a half-point move in March or May.
On Wednesday, the Fed will publish January-February 31 minutes. 1 meeting. On Friday, investors will get January’s results for the PCE price index, the Fed’s favorite inflation gauge.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) lost 2.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2%. The VanEck Vectors Semiconductor ETF (SMH) fell 3%. Nvidia stock is a large SMH holding company.
Due to stocks with more speculative stories, the ARK Innovation ETF (ARKK) fell 6.1% and ARK Genomics (ARKG) fell 6.25%. CRSP Shares and Coinbase are two major holdings at Ark Invest.
The SPDR S&P Metals & Mining ETF (XME) lost 2.6%. The US Global Jets ETF (JETS) fell 3%.
SPDR S&P Homebuilders ETF (XHB) sold 3.9% as Home Depot’s guidance and rising yields hammered home-related stocks. The TOL share is an XHB holding company.
The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) each fell 2.1%. The Health Care Select Sector SPDR Fund (XLV) fell 1.3%.
Five best Chinese stocks to watch right now
Analysis of the market rally
The stock market rally extended its pullback on Tuesday. The S&P 500, Nasdaq and Russell 2000 all fell sharply and fell below their 21-day moving averages. The Dow Jones fell clearly below the 50-day line after holding at that key level for a month.
As of now, the market pullback still looks normal on a weekly chart, but it’s kind of like someone’s blood pressure is “normal” but heading toward the upper limit.
The S&P 500 and Nasdaq are tumbling near their 50-day and 200-day lines, respectively. It would be worrisome to break those levels.
Recent breakouts and buy signals have struggled, with the overall market fading since Feb. 2 and especially in the past three sessions.
Rising government bond yields and a rebounding dollar weigh on stock prices, especially growth names. With some short-term returns over 5%, that’s a pretty decent risk-free return relative to stocks.
More broadly, the market rally is no longer taking away mixed (at best) earnings, expectations and economic data.
The good news is that investors no longer seem so complacent. The Cboe Volatility Index, or VIX, has surged to its highest level since early January, just ahead of the Jan. 6 follow-up day.
Speculative growth names, which soared from the lows of the bear market in January, may not stay on the upswing if their actual earnings don’t match.
Some mining stocks showed strength as copper and other metal prices recovered. But does that take longer than a day?
More defensive names stand out again. Lamb Weston (LW) floats around a buy point while Hershey (HSY) flirted with a breakout on Tuesday. walmart (WMT) issued a buy signal on earnings despite a weak outlook.
Time the market with IBD’s ETF market strategy
What to do now
Investors should become more defensive, perhaps by reducing their overall exposure. Even if that’s not your explicit goal, you should limit exposure by cutting out individual losers or at least taking partial gains from some winners.
The recent pullback may still be positive. Stocks that resisted the initial mild pullback in early February are now taking a breather or falling back. A few good days could easily revive the market rally’s fortunes and create some buying opportunities. So investors need to be ready to trade and build their watchlists.
But if conditions worsen, you need to take a bigger step back. So stay flexible and stay involved.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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