Dow Jones futures, fell modestly Sunday night, along with S&P 500 futures and Nasdaq futures, ahead of a key Federal Reserve meeting this week. The stock market rally saw modest losses last week, but is struggling to find support as a Wednesday rebound fizzled Friday.
The S&P 500 index fell below its 50-day moving average. Apple (AAPL) also broke through the 50-day line, but industrials, including fellow Dow Jones giant Caterpillar (CAT), as well as miners, steelmakers and materials firms were big losers.
But growth stocks had a solid week overall. Microsoft (MSFT), unlike fellow tech titan Apple stock, rallied from its 10-week line. Small caps held key support.
Oil and gas stocks had a big week, with Devon Energy (DVN) clearing an early entry and flirting with an outright breakout. Specialty footwear plays Crocs (CROX), Deckers Outdoor (DECK) and Boot Barn (BOOT) rallied, with the latter two actionable. Chipotle Mexican Grill (CMG) is among several restaurant chains trying to get back on the investing menu.
Chip stocks were mixed overall, but Entegris (ENTG) broke out while Advanced Micro Devices (AMD) is teasing a possible entry if the market rally cooperates.
But there’s the rub. Will the stock market rally find support at current levels, or will the pullback turn into an outright correction?
Microsoft stock, Devon Energy and Deckers are on IBD Leaderboard. Microsoft and ENTG stock are on IBD Long-Term Leaders. Crocs and DECK stock are on the IBD 50.
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The Federal Reserve will hold a two-day policy meeting starting Tuesday. Fed policymakers have signaled that they will vote in favor of tapering bond buys, starting sometime before the end of the year. How will financial markets respond if Wednesday’s Fed meeting announcement and Fed chief Jerome Powell’s press conference confirm that the central bank will scale back asset purchases?
The stock market rally may be searching for direction until the Fed meeting announcement.
Dow Jones Futures Today
Dow Jones futures fell 0.5% vs. fair value. S&P 500 futures declined 0.4% and Nasdaq 100 futures retreated 0.2%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Coronavirus cases worldwide reached 229.26 million. Covid-19 deaths topped 4.70 million.
Coronavirus cases in the U.S. have hit 42.90 million, with deaths above 691,000.
The seven-day average of new cases in the U.S., continues to trend lower. Some northern states such as Pennsylvania are seeing a delta wave, while southern states such as Florida continue to see rapid declines.
On Friday, an FDA advisory panel overwhelmingly voted not to recommend booster shots for adults 16-64. But it unanimously backed booster shots for adults 65 and up, as well as adults at high risk of developing Covid. The FDA and CDC will now make their decision, but the panel’s vote suggests that booster shots will not be in offing for most adults.
Moderna (MRNA), Pfizer (PFE) and its partner BioNTech (BNTX) fell modestly on Friday.
The Biden administration reportedly is negotiating to buy 500 million Pfizer doses to donate to poor countries, with an announcement likely in a few days.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had a solid middle of the week but started poorly and ended that way.
The Dow Jones Industrial Average edged down 0.1% in last week’s stock market trading, after already falling below its 50-day line. The S&P 500 index sank 0.6%. The Nasdaq composite gave up 0.5%, thanks to Friday’s 0.9% retreat. The small-cap Russell 2000 edged up 0.4%.
Apple stock fell 1.95% last week, nearly all of that on Friday, weighing on the Dow Jones, S&P 500 and Nasdaq composite. Microsoft retreated Friday, but still rose 1.4% for the week, giving a boost to the major indexes.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.75% last week, rebounding from notable losses early on. The Innovator IBD Breakout Opportunities ETF (BOUT) gave up 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.1%, even with MSFT stock as a major component. The VanEck Vectors Semiconductor ETF (SMH) shed 0.5%, with AMD stock a major component.
SPDR S&P Metals & Mining ETF (XME) tumbled 5.3% and Global X U.S. Infrastructure Development ETF (PAVE) retreated 2.2%. U.S. Global Jets ETF (JETS) ascended 2.4%. SPDR S&P Homebuilders ETF (XHB) fell 0.85%. The Energy Select SPDR ETF (XLE) popped 3.2%, with DVN stock a component. The Financial Select SPDR ETF (XLF) ended just below break-even.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 0.5% and ARK Genomics ETF (ARKG) 0.2%, helped by Friday gains of 2.1% and 3%, respectively.
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Market Rally Analysis
Last week’s losses in the major indexes were pedestrian, but where and how they occurred was disappointing. On Wednesday, the S&P 500 found support at its 50-day line, just where you’d expect it to, as the broader stock market rally rebounded. Thursday seemed to show some grit, as the indexes slashed or erased intraday losses. But Friday’s retreat, with the S&P 500 index closing just below its 50-day line, suggested a possible change in character.
On the bright side, growth stocks did do well overall, with highly valued ARK-type plays coming on strong late in the week. The Russell 2000 rebounded from its 200-day line and closed back above its 50-day. Those suggest that the stock market rally is in better shape than the S&P 500 and other major indexes indicate.
Then again, growth and small caps gained ground against slim weekly losses for the major indexes. If the latter break significantly below the 50-day line, which is now clearly a risk, then it’ll be a stiff challenge for growth names to keep rising, especially highfliers like Upstart (UPST) that have gone on huge runs over the past several weeks.
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What To Do Now
The risk that the rebound might fizzle is why IBD cautioned investors to add exposure cautiously on Wednesday and Thursday, despite a number of promising buying opportunities. The short-term market rally direction was in flux — and still is. Some recent buys may be holding up, while others may be looking shaky.
Investors should once again be less aggressive. For investors who cut exposure during the pullback and didn’t add much back during last week’s short-lived rebound, a wait-and-see approach may make sense. Investors who are fully invested, or made numerous buys mid-week, may want to consider paring back, cutting losers and taking partial profits.
Whatever your particular situation, analyze your current holdings and rework your watch lists. Then make a game plan for what to do if the market rally strengthens, offering new buying opportunities, or continues to retreat.
Stay flexible. With the market rally seemingly at a turning point, you might be bullish in the morning and bearish at the close.
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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