Dow Jones futures rose Friday morning, along with S&P 500 futures and especially Nasdaq futures. The stock market rally opened strong on Thursday but closed sharply lower, a bearish sign. The Nasdaq hit resistance at its 21-day exponential moving average and closed below its 50-day line.
Meanwhile, Peloton Interactive (PTON), Chewy (CHWY) and Oracle (ORCL) reported earnings late Thursday. Peloton stock jumped after the at-home-workout leader delivered blowout results and bullish guidance. Chewy edged lower while Oracle rose after both beat views.
Meanwhile, the clock is once again ticking for a TikTok deal. After reports that the U.S. might not require China’s ByteDance to sell the U.S. operations of the viral video site, President Trump said late that he won’t extend his mid-September deadline. “We’ll either close up TikTok in this country for security reasons, or it will sold…..there will be no extension of the TikTok deadline.”
Microsoft and Walmart (WMT) have teamed up on a TikTok bid. Both Dow giants rose a fraction late. Oracle is another possible suitor.
Stock Market Reversal
The stock market rally opened with strong gains, with the Nasdaq extending Wednesday’s rebound from the 50-day line. But the index reversed lower after hitting the 21-day exponential moving average, which had acted as a support level during most of the current market rally. The major indexes and leading stocks whipsawed back and forth during the session, with the Nasdaq closing just below its 50-day line again.
Apple, Amazon, AMD, Adobe, ServiceNow and Facebook all moved above their 21-day lines intraday but reversed lower. Tesla stock also couldn’t hold its 21-day line, but did close modestly higher. Microsoft hit resistance at its 21-day line. Nvidia, which had closed above its 21-day on Wednesday, fell below that key level Thursday.
These stocks were all generally higher Friday morning.
Danger Zone For Investors
Choppy markets are the most dangerous environment for growth investors. In a clear market uptrend, most stocks are going to rise. In a correction or bear market, investors can simply step to the side until conditions improve. But in a volatile sideways market, there are plenty of top stocks that look promising. There will be days (or intradays) when the major indexes are running and top stocks are flashing buy signals. But that means investors are going to be prone to buying near (very short-term) tops. Even if the overall trend is sideways, there’s a strong chance that new buys will be underwater.
Apple, Tesla, Microsoft, Adobe, ServiceNow, Nvidia and Amazon stock are all on IBD Leaderboard. Microsoft, Adobe and ServiceNow stock are on IBD Long-Term Leaders. Amazon, AMD, Adobe, ServiceNow, Nvidia and Microsoft stock are on the IBD 50.
Dow Jones Futures Today
Dow Jones futures rose 0.6% vs. fair value. S&P 500 futures were 0.7% above fair value. Nasdaq 100 futures advanced 0.75%, well off morning highs.
Keep in mind that overnight action in Dow futures, Peloton stock and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. Dow futures predicted Thursday’s solid open but not the negative reversal. When stock market volatility is higher, Dow Jones futures are prone to swings and are even less likely to predict the next regular trading action.
Coronavirus cases worldwide reached 28.36 million. Covid-19 deaths topped 914,000.
Coronavirus cases in the U.S. have hit 6.58 million, with deaths above 196,000.
New cases in Europe are now outpacing those in the U.S., but coronavirus deaths haven’t picked up there.
Stock Market Rally Thursday
The coronavirus stock market rally had a bearish reversal in a volatile trading session. The market direction remains “uptrend under pressure.”
The Dow Jones Industrial Average fell 1.45% in Thursday’s stock market trading. The S&P 500 index lost 1.8%. The Nasdaq composite, up as much as 1.4% in the morning, tumbled to close down 2%. The Nasdaq didn’t undercut Tuesday’s low, but that was about the only silver lining amid the dark clouds.
There didn’t seem to be any news trigger. Brexit fears revived as the European Union told the U.K. to revise new legislation that it says breaks the Brexit divorce deal. A new GOP coronavirus stimulus bill failed to get the 60 votes needed to advance, but that wasn’t a surprise. Still, the chances of big aid for the economy are fading with Election Day less than two months away.
Apple Stock Leads Growth Reversal
Apple was one of the first growth leaders to reverse lower Thursday. After popping 2.7% near the open, going above the 21-day EMA, Apple closed down 3.3%. Fellow Dow Jones stock Microsoft closed down 2.8%, now well below the 50-day line. Amazon, which rallied above its official buy point of 3,344.39 intraday, finished the session below its “real” entry of 3,247.57 and right at its 50-day.
Adobe stock, up 4.7% intraday, dipped 0.7%, still above recent buy points. AMD stock lost 3.6% and rival Nvidia shed 3.2%. Facebook retreated 2.1%.
Tesla stock spiked as much as 8.9% to 398.99 then settled for a 1.4% gain.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid 1.6%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.2%, with Microsoft, Adobe and ServiceNow stock key holdings. The VanEck Vectors Semiconductor ETF (SMH) fell 1.3%, with AMD and Nvidia stock key players.
Stock Market Direction Unclear
The stock market trend in the short term is unclear. Perhaps the market will trade between its 21-day and 50-day lines for a while — with up-and-down swings. The resistance at the 21-day line could be temporary, offering some room toward all-time highs. Then again, support at the 50-day line may be temporary. The continued lack of fear in the Cboe Volatility Index suggests more selling may be needed to scare off investors.
What To Do Now
The major indexes and leading stocks right now are prone to sudden, sharp intraday swings up and down, with Thursday’s whipsaw action a prime example. Investors should be cautious about new buys. If you do make buys, have a line in the sand and be ready to act quickly to cut losses.
If the Nasdaq breaks decisively below the 50-day line, investors should look to take more profits. If you want to hold a few big winners through a possible correction for longer gains, paring back on overall exposure could make that easier.
There’s nothing wrong with being largely or entirely in cash for now. Not only do you preserve your capital, you preserve a positive mindset for when the stock market rally is clearly back on track. The worst possible outcome is to take a series of losses now, then be too weary or fearful to take part in a better trading environment.
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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