Dow Jones futures fall: Market rally continues to rise, but why might the S&P 500 stall?


Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. A strong stock market rally fizzled Tuesday morning and was briefly confused after Russian missiles were reported to have landed in Poland.




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Target (TGT) As earnings headlined Wednesday morning, the chip giant Nvidia (NVDA) looms large on Wednesday night.

The stock market rose on Tuesday morning with yet another inflation report. Walmart ( WMT ) earnings also helped. Warren Buffett’s Berkshire Hathaway also announced a large new position Taiwan Semiconductor (TSM).

Major indexes pared gains slightly, but then quickly got mixed up on Russian missile news. But the Dow recovered to turn positive again.

Polish missile attack

In the afternoon, stocks fell on reports that Russian missiles had hit the Polish village of Prjewodow on the border with Ukraine. The rockets reportedly killed two people. It is possible that Russian missiles missed targets in Ukraine, or that the Ukrainian military shot down the missiles and landed in Poland. Moscow launched mass attacks against Ukrainian cities on Tuesday.

Russia bears no responsibility. Poland said the strike appeared to be an “isolated incident”.

A deliberate attack on Poland would be extremely dangerous. All NATO members pledge to protect all other members from attack. NATO ambassadors will meet on Wednesday morning to discuss Article 4 rather than the more aggressive Article 5 defense clause. But a larger-scale conventional war would increase the risks of nuclear weapons, creating an existential threat to the world and, of course, the stock market.

Polish missile attack news aside, the market rally may be due for a pause after a strong run and the S&P 500 nearing key resistance.

still, MercadoLibre (MELI) and Clean Storage ( PSTG ) cleared buy points on Tuesday, although PSTG shares held off a formal entry for the second straight session.

Retail profit

target, Lowe’s (DOWN) and TJX Cos. ( TJX ) reports earnings early Wednesday, along with October retail sales. It is followed by Dow Jones giants Walmart and Home Depot (HD) Tuesday earnings. WMT stock has broken out of a buy spot, rising 6.5% on strong earnings, guidance and a big buyback. HD shares tried to establish a handle, rising 1.6%.

TGT shares rose 3.6% on Tuesday, but hit resistance at the 200-day line, nearing a bottom buy point. Lowe works on a 2.15% advanced, bottom main handle. TJX shares rose 2.9%, still at a 10-month beaker base.

Nvidia reports Wednesday night. Shares of Nvidia rose 2.3% on Tuesday, buoying the chip sector, capping big gains over the past month. Strong earnings and guidance from Nvidia as well as the chip hardware giant Applied materials (AMAT) Thursday night will be significant for the sector and the broader market rally.

The video embedded in this article discussed Tuesday’s market rally and included shares of MELI, Pure Storage and Albemarle (ALB).

MercadoLibre stock joined the IBD Leaderboard and became IBD’s Stock of the Day on Tuesday. ALB shares are on the Leaderboard watchlist. MercadoLibre and PSTG shares are on SwingTrader. Pure Storage is in the IBD 50.

Dow Jones Futures today

Dow Jones futures were down 0.1% at fair value. S&P 500 futures were down 0.1%, while Nasdaq 100 futures were down 0.1%.

Amazon.com ( AMZN ) began laying off corporate and technology employees on Tuesday, according to LinkedIn posts from affected Amazon employees. The e-commerce and cloud computing giant is reportedly planning to cut 10,000 jobs. AMZN shares fell 1% overnight.

Former President Donald Trump announced his candidacy for the White House in 2024 on Tuesday night.

October retail sales are due at 8:30am ET. Economists expect the Commerce Department to report a gain of 1% or just 0.2% excluding autos and gas.

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

The stock market rally opened strongly as the producer price index came in lower than expected, while the core PPI was flat from September. Walmart earnings also helped. TSM shares jumped 10.5% Tuesday night on news of Warren Buffett’s stake purchase. Buffett’s Berkshire also took new positions and new stakes Louisiana-Pacific (LPX) and Jefferies (JEF).

But major indexes pared gains, with the Dow briefly turning negative on a report that Russian missiles had hit Poland.

The Dow Jones Industrial Average rose 0.2% in Tuesday’s trading, even as WMT shares and Home Depot posted gains. The S&P 500 index rose 0.5%. The Nasdaq gained 1.45%. The small-cap Russell 2000 gained 1.5%.

The 10-year Treasury yield fell 7 basis points to 3.8%. The US dollar has also fallen.

U.S. crude oil prices rose 1.2% to $86.92 a barrel after briefly rising more than 3% on the Russian missile news. Natural gas futures advanced 1.7%.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.4%. The iShares Expanded Tech-Software Sector ETF (IGV) gained 2.3%. The VanEck Vectors Semiconductor ETF ( SMH ) jumped 3.15%, with Taiwan Semi and Nvidia AMAT stocking the giant components.

The SPDR S&P Metals & Mining ETF ( XME ) rose 0.85%. The SPDR S&P Homebuilders ETF ( XHB ) advanced 2.1% with HD shares and Lowe’s both significant holdings. The Energy Select SPDR ETF ( XLE ) gained just over 1%, while the Financial Select SPDR ETF ( XLF ) rose 0.2%. The Healthcare Select Sector SPDR Fund ( XLV ) fell 0.1%.

Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) rose 2.7% and the ARK Genomics ETF ( ARKG ) was just above par.


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Stocks Close to Buy Points

MELI shares rose 6.4% to 1,020.68, clearing a 1,018.10 cup-handle buy point. MercadoLibre’s volume was below normal, but the recent consolidation has seen a number of gains on above-average volume. The Latin American e-commerce giant has strong revenue growth.

Shares of PSTG rose 1.6% to 31.56. Pure Storage reached 32.47 during the day, clearing the 32.07 cup handle buy point for the second straight session, but failed to close above that entry, according to MarketSmith. Shares of PSTG ended at 32.57 in early trade.

The data storage company also has strong revenue growth.

Market rally analysis

The stock market rally got off to a strong start on Tuesday with an uptick in the PPI inflation report. But the major indexes gave back the day’s highs, then got mixed up on news of a Polish missile attack.

Maybe the inflation/Fed story has changed. But that doesn’t mean the major indexes can’t resist, especially after a strong recent run. As Tuesday’s action showed, there’s always the potential for geopolitics or other wild cards to buck the market trend.

The Dow Jones and Russell 2000 both broke above their 200-day moving averages. The S&P 500 is nearing the 200-day line, which was again strong resistance on August 16.

The Nasdaq is moving toward the 200-day line from the 50-day, but it still has a long way to go.

Note that the Invesco S&P 500 Equal Weight ETF (RSP) is just above its 200-day line. The Direxion Nasdaq-100 Equal Weighted Index ETF ( QQQE ) is approaching this key long-term level.

Of course, because you can argue that the major indexes are “timed” for a break or a pullback or a bounce, and the market will do what it will.

Tech giants are back with the market, but not necessarily the leaders. Many titans hit lows in the bear market just last week. One and a half exceptions are Nvidia shares, which have risen over the past month. But even the chip giant is still working above its 200-day line.

However, many sectors are showing strength.

Solar, grid, contract electronics manufacturers and several medical product firms are doing well. So are a select number of chips, while a few others try to build. From builders to suppliers to housing retailers, many housing stocks look interesting.

Other retailers looking good including WMT stock BJ’s Wholesale (BJ) and Ulta Beauty (ULTA). This was reported by BJ on Thursday.

Trucking firms are rising as investors argue that the worst is over, or at least that shipping stocks are valued.

Biotechs and health insurers have stalled or pulled back, but are generally in decent shape. Power supplies also work well, although many are stretched.


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What to do now

Major indices look strong, giving more stock buy signals and building. Inflation data may have reached a turning point, raising the prospect of a slowdown in Fed rate hikes and — perhaps — an end to tightening in the not-too-distant future.

Hence, investors should take advantage of the current market rally. But they want to be cautious about how much they add in the short term, given the possibility of a market pullback or resistance.

Do not chase extended stocks. Be wary of buying stocks that are significantly extended above their 50-day moving averages, even if they are in official buy zones. Don’t concentrate too much. A portfolio focused on lithium stocks like Albemarle was set to burn on Tuesday.

But work on those watch lists, get busy, and be ready to take action.

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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