Dow Jones Futures: Cisco, Nvidia Move on Earnings; A major bearish signal is strengthening


Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures, as Nvidia and Cisco gained.




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The stock market retreated amid a weak rally Target (TGT) earnings and holiday guidance, as well Micron Technology (MU) cuts memory chip production plans. The bond market glows with glaring recession risks as the yield on the 10-year Treasury continues to fall, while short-term interest rates remain high.

The EV giant Tesla ( TSLA ) pulled back, posting the weakest recent performance among megacap stocks.

Earnings

Nvidia (NVDA), the lithium giant Sociedad Quimica and Minera de Chile (SQM) and Cisco Systems (CSCO) headlined earnings on Tuesday.

NVDA shares rose modestly in overnight trading after mixed earnings and guidance.

CSCO shares rose 4% in long-term action as Cisco beat its fiscal Q1 guidance and boosted revenue. Cisco shares fell 1.1% on Wednesday, trading between the 50- and 200-day lines. IBD Stock Leaderboard Arista Networks (ANET) Cisco rose slightly in earnings.

SQM earnings are still in tonight. SQM shares fell 2.6% on Wednesday, down more than 10% this week on concerns about lithium prices. The Chilean lithium and fertilizer giant is in a cup base with a buy point of 115.82. It can work on a handle.

Chinese e-commerce giant Alibaba (BABA) and US department store chains Macy’s (M) and Kohl’s (KSS) is on Thursday. BABA shares fell slightly on Tuesday, but after rising 11% on Tuesday. Shares of Macy’s and KSS fell Wednesday on Target’s holiday warning.

Dow Jones Futures today

Dow Jones futures were up 0.2% at fair value. S&P 500 futures rose 0.2%. Nasdaq 100 futures gained 0.3%. CSCO stock is a Dow Jones, S&P 500 and Nasdaq component, but Nvidia has a larger weighting in the S&P 500 and Nasdaq.

According to many media reports, Republicans have regained control of the House of Representatives. But it will be a far smaller majority than expected leading up to polling day.

Remember that an overnight move in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.


Join IBD’s experts as they analyze the stocks that made the most of the stock rally on IBD Live


Stock market rally

Stocks lost ground in Thursday’s rally, with small caps and techs leading the decline.

The Dow Jones Industrial Average fell 0.1% in Wednesday trading. The S&P 500 index lost 0.8%. The Nasdaq composite lost 1.5%. The small-cap Russell 2000 retreated 1.8%.

The price of crude oil in the United States decreased by 1.5% to 85.59 dollars/barrel. Natural gas futures rose 2.8%.

The Treasury yield curve is flashing recession risk

The 10-year Treasury yield fell 11 basis points to 3.69%, the lowest since early October and down from 4.15% just a week ago. The Fed, which currently has a yield of 3.75%-4%, is expected to raise interest rates by 50 points to 4.25%-4.5% next month.

The two-year Treasury yield, which is more closely tied to Fed policy, was flat at 4.36%, while the three-month yield was at 4.23%. The steepening yield curve inversion between the three-month and 10-year Treasuries is the highest since a brief run in late 2019. This points to increased risks of recession or, at best, modest economic growth in 2023.

Fed chief Jerome Powell and some of his colleagues have hinted that a recession may be needed to bring inflation under control, although other policymakers see a decent chance of a soft landing.

The ever-inverted yield curve comes on the back of still-firm labor markets and a strong retail sales report for October.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) lost 1.7%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) lost just over 1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) lost 2.1%, as many cloud software names had a poor session. The VanEck Vectors Semiconductor ETF ( SMH ) fell 3.6%, along with Nvidia shares and Micron core components.

The SPDR S&P Metals & Mining ETF ( XME ) was down just over 2%, while the Global X US Infrastructure Development ETF ( PAVE ) was down 0.5%. The US Global Jets ETF (JETS) lost 2.4%. The SPDR S&P Homebuilders ETF ( XHB ) fell 1.4%. The Energy Select SPDR ETF (XLE) was down 2%, while the Financial Select SPDR ETF (XLF) was down 0.5%. The Health Care Select Sector SPDR Fund ( XLV ) ended slightly below par.

Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) lost 5.15% and the ARK Genomics ETF (ARKG) lost 3.7%. Tesla stock remains a key holding in Ark Invest’s ETFs.


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Nvidia earnings

Nvidia earnings missed Q3 outlook, but revenue fell short of expectations. Data center chip demand remained strong. Gaming revenues are down, but not as bad as feared. The chip giant pointed slightly lower in Q4 sales.

Nvidia shares rose 2% in active overnight trading. Shares fell 4.5% to 159.10 on Wednesday. But NVDA shares rallied after reaching a bear market low of 108.13 on Oct. 13 on hopes that business would improve. The chip giant has moved well above its 50-day line, but is still below its 200-day line.

There is no buy point in sight for Nvidia stock. Ideally, stocks will break above the 200-day line and form a new base.

Tesla shares

Tesla shares fell 3.9% to 186.92 on Wednesday. Although above the two-year low of 177.12 set on November 9, TSLA stock is resisting the 10-day moving average. The EV giant has not closed above its 21-day line since September 21.

Other megacaps struggled, though apple (AAPL), Microsoft (MSFT) and parent Google Alphabet ( GOOGL ) is above its 50-day moving average, even on Facebook Meta platforms (META) is above the 21-day line.

Meanwhile, other EV stocks look as bad or worse than Tesla. Also, CEO Elon Musk’s Twitter power could affect TSLA stock in various ways.

Musk testified in a lawsuit Wednesday about 2018 Tesla stock options worth about $50 billion of his fortune. He hinted that he will not remain the head of Twitter.


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Market rally analysis

A stock market rally is arguably the cause of a pause or pullback, and that’s exactly what happened on Wednesday.

The Dow Jones is holding comfortably above its 200-day line and is standing just below August’s short-term highs. The S&P 500 is looking fairly normal with a modest decline not far from the 200-day line.

The Nasdaq is still clearly above the 50-day line, but is back below its October short-term highs. The Russell 2000 fell below its 200-day line and hit an intraday low on Monday.

Meanwhile, several stocks that had given buy signals in the last few sessions fell back on Wednesday. While many retailers missed Target’s gains, growth plays were broadly subdued while defensive names rebounded and defensive growth stocks held.

If the market rallies in the near future, Wednesday’s action will soon be forgotten. But if the Nasdaq breaks below its 50-day low and the leading stocks come under more pressure, it will be worrisome.

While markets are rightfully focused on Fed policy, there are other concerns as well. Still, the cumulative effect of the Fed’s rate hikes this year is weighing on the economy. And the impact of interest rate hikes will ultimately continue for months to come.

An inverted yield curve reflects rising downside risks.

Even now, the combination of high inflation and weakening demand is causing serious damage. Even though Target’s earnings were competitive, it showed Walmart (WMT) had strong results and leadership. Inflation may ease slowly in the coming year, but that doesn’t mean the outlook for corporate profits and stock prices is bright.


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What to do now

Wednesday’s move provides a reason for investors to be cautious about adding exposure too quickly. If the market pulls back like it did on Wednesday, taking a bunch of new positions in one day can backfire. It is better to gradually add exposure, assuming the market rallies and your positions advance.

The stock market rally is still in good shape, but prone to big swings, sector rotations and earnings surprises. It is still unclear which stocks and sectors will lead. So don’t focus too much on a particular sector or topic.

But you want to regularly update your watchlists by casting a wide net.

Early entries are still important. Traditional buy points have not fared particularly well, especially when they are markedly above the 50-day line.

Investors may still want to take partial profits when a stock makes a quick profit. This can give you the confidence to hold the remaining share for longer and will protect your portfolio.

Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter @IBD_ECarson for stock updates and more.

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