Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. The stock market rally suffered significant losses for a third consecutive week.
With major indices heading south and few stocks looking healthy, investors should have a large cash position and wait for better conditions.
Apple (AAPL) will be the center of attention this week, with tech giant Dow Jones set to unveil the iPhone 14 on September 7. Apple stock has built up to a dip in recent sessions with the broader market.
Arista Networks (ANET) has a similar chart model to Apple’s, but ANET stock has some differences that may make it more appealing. However, ANET’s stock is certainly not exploitable.
Meanwhile, Enphase Energy (ENPH), Lanthee (LNT) and Neurocrine Biosciences (NBIX) are down in consolidations after strong breakouts. Are they settling in or ready to crack?
The Lantheus share is on the IBD ranking. ENPH and Arista Networks shares are on the IBD Big Cap 20.
The video embedded in the article reviewed the market action in depth, while also analyzing Apple, Arista Networks and Enphase Energy stocks.
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
US stock markets will be closed on Monday for the Labor Day holiday, but other stock exchanges around the world will be open. Dow futures will trade normally on Monday.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally is a rally in name only. It extended recent losses, while ending slightly above Thursday’s intraday lows.
The Dow Jones Industrial Average fell 3% in stock trading last week. The S&P 500 index lost 3.3%. The Nasdaq composite fell 4.2%. The small-cap Russell 2000 fell 4.7%
The 10-year Treasury yield climbed 16 basis points to 3.19%, a fifth consecutive weekly gain despite falling from two-month highs on Friday.
U.S. crude oil futures fell 4.9% to $86.87 a barrel last week. An OPEC+ meeting on Labor Day could discuss possible production cuts to try to stabilize oil markets. Analysts say a reduction is unlikely at this time. In any case, the reduction in quotas could have little impact because many cartel members are already not respecting existing production quotas.
Natural gas futures fell 5.2%, almost all of it on Friday.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 6.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 3.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 4.4% as many popular software names not listed in IGV plummeted last week. ETF VanEck Vectors Semiconductor (SMH) plunged 6.7%.
The SPDR S&P Metals & Mining (XME) ETF plunged 8.4% last week as steel stocks tumbled after a few flashed buy signals last week. The Global X US Infrastructure Development ETF (PAVE) fell 4.6%. The US Global Jets ETF (JETS) lost nearly 4%. The SPDR S&P Homebuilders ETF (XHB) lost 3.3%. ETF Energy Select SPDR (XLE) and ETF Financial Select SPDR (XLF) fell 3.4%, but after three weekly gains. The SPDR healthcare sector fund (XLV) fell 1.8%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 5.25% last week and ARK Genomics ETF (ARKG) 5.1%.
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Apple stock vs. ANET Share
Apple stock fell 4.8% to 155.81 last week, breaking below the 200-day line and finally below the 50-day line. The AAPL stock still has a buy point of 176.25 handles, but the handle looks increasingly unattractive.
The relative force line remains close to the tops. This shows that Apple stock is falling broadly in line with the S&P 500.
Apple’s earnings fell last quarter as analysts saw single-digit EPS growth in fiscal 2022 and 2023.
ANET stock fell 4.7% to 117.30, also undercutting its 200-day line, with a rebound on Friday. Stocks didn’t quite fall to their 50-day line during the week, although they tested their 10-week line. Arista stock has a buy point of 132.97 in a double bottom basis.
Meanwhile, Arista’s earnings and sales growth accelerated over the past three quarters, with EPS up 59% and revenue up 49% in the second quarter. Analysts forecast EPS growth of 40% in 2022 and 13% in 2023.
Arista’s revenue could be considered more vulnerable than Apple’s. A sharp cut in corporate IT spending could hit networking stocks as demand for iPhones and Apple services looks more stable.
Other actions to watch
ENPH stock fell 3.3% last week to 279.07, but has been trading relatively tight and maintaining support around the 21-day moving average. The solar energy leader is trading relatively tight and could have a flat base on a weekly chart after another week. Enphase stock could also continue to slide – or move sideways – to test the fast-growing 50-day and 10-week lines. This could provide a buying opportunity, assuming ENPH stock rebounds from there.
NBIX stock slipped 1.8% last week to 103.01, closing around its 21-day line. On Friday morning, Neurocrine bounced off this level and was close to a short trendline entry, but reversed lower as the market reversed. NBIX stock is not far from its 50-day line, which currently roughly coincides with the previous buy point of 100.10. Biotech needs a few more weeks to form a proper base.
LNTH stock fell 3.7% last week to 78.48, closing slightly below the 21-day line, according to MarketSmith analysis. The fast-growing 21-day or 50-day could offer a new entry for Lantheus, which wiped out a previous base in August, but in wild action.
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Market rally analysis
The stock market rally is a rally in name only. Since the S&P 500 stopped just below its 200-day moving average on August 16, the major indexes have retreated. Fed Chief Jerome Powell’s Aug. 26 speech in Jackson Hole signaling a more aggressive and somber Fed triggered a sharper selloff.
Last week, all key indices fell below their 50-day moving averages. They bounced off Thursday’s intraday lows, with the Nasdaq composite narrowly avoiding an undercut from its late-July lows.
On Friday morning, the indices bounced off the August jobs report, which showed robust hiring but also a long-awaited jump in the labor force. But after the S&P 500 and Russell 2000 hit their 50-day lines, the indices staged a nasty reversal.
The 50-day moving average now acts as a cap against support. Exceeding this level is the key, but it is only a first test. The 21-day line is another key level, roughly coinciding with the strong downtrends of the Nasdaq and S&P 500. But the real key would be to break above the 200-day moving average.
On the other hand, the Nasdaq undercutting Thursday’s lows would likely signal the official end of the struggling market’s rally.
Many top-tier stocks have taken a lot of damage over the past week. While some stocks such as ENPH and NBIX are holding up relatively well, they are not making progress.
Apple and ANET shares, potential leaders, do not fall much more than the broader market. This is an example of why investors want to buy stocks in the middle of an uptrend in the market.
Energy stocks are in their own world of oil and gas prices, but are subject to wild price swings, sometimes at the whim of autocratic rulers.
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What to do now
Investors should have minimal exposure and patiently prepare for a better market environment. Until the major indices return to their 50- or 21-day moving averages, investors probably shouldn’t consider further buying. The only exception might be oil and gas names, but investors should exercise caution even there.
The rapid rise and reversal of the 50-day line may have offered short selling opportunities. Another 50 day attempt could do it again in the next few days.
So build your long and short watchlists, which will likely require a lot of changes from a week ago. On the upside, focus on stocks with strong relative strength, even if they don’t have ideal patterns.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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