Dow Jones futures fell Friday morning, along with S&P 500 and Nasdaq futures, as Bitcoin and other cryptocurrencies fell overnight.
The stock market rally may finally be ready for a pullback after a few days of pause. The main indices rose slightly on Thursday. A modest retreat would be constructive. Investors should be cautious before adding significant exposure in the very near future.
Wholesale BJ’s (bj) and Canadian Solar (CSIQ) deviated from the basics on strong earnings, as both come from areas of market strength. Exxon Mobil (XOM) sent a buy signal as oil and gas stocks continue to lead on rising energy prices. Vertex Pharmaceuticals (VRTX) pulls back, but perhaps creates a new buying opportunity.
Meanwhile, Bed bath and beyond (BBBY) suffered a “return to the meme”, collapsing overnight as GameStop (EMG) Chairman Ryan Cohen, a big BBBY stock investor, cashed in. BBBY stock plunged on Thursday after Cohen announced his intention to exit.
Income from applied materials were better than expected in the third fiscal quarter, with the chip equipment giant also guiding higher. AMAT shares were little changed early Friday after rising slightly Thursday evening. The shares of the Applied materials (HUGE) rose 2.1% to 108.27 on Wednesday. Applied Materials stock is still significantly below its 200-day moving average.
AMAT earnings could be good news for its rival KLA Corp. (CLUTCH). KLAC stock remained calm in extended trading after rising 1.85% to 382.02 on Thursday. It works on a 399.06 mug with handle buy point, and is about to break a trendline in that handle, which would offer early entry.
Dow Jones Futures Today
Dow Jones futures fell 0.6% from fair value. S&P 500 futures fell 0.8%. Nasdaq 100 futures were down 0.9%.
Bitcoin fell nearly 8% from 24 hours earlier below $22,000, plunging suddenly early Friday morning. Ethereum and other major cryptocurrencies also sold off.
Crude oil futures fell 2% and natural gas prices fell more than 1%.
The 10-year Treasury yield climbed 5 basis points to 2.93%.
Stock market rally
The stock market rally traded in a tight range for most of Thursday’s session.
The Dow Jones Industrial Average rose less than 0.1% on Thursday stock market trading. The S&P 500 index and the Nasdaq composite climbed 0.2%. The small cap Russell 2000 gained 0.7%.
U.S. crude oil prices rose 2.7% to $90.50 a barrel. Gasoline futures rose 3.1%. Natural gas futures edged down 0.6%, but are just at 14-year highs.
The 10-year Treasury yield fell 1 basis point to 2.88%.
From best ETFsthe Innovator IBD 50 ETF (FFTY) rose 1.4%, while the Innovator IBD Breakout Opportunities ETF (FIGHT) climbed 0.5%. The iShares Expanded Tech-Software Sector ETF (VAT) lost a fraction. The VanEck Vectors Semiconductor ETF (SMH) rose 1.4%, with AMAT stock being a notable contributor.
SPDR S&P Metals & Mining ETF (XME) climbed 2.4% and the Global X US Infrastructure Development ETF (PAVE) 0.7%. US Global Jets ETF (JETS) fell 0.3%. ETF SPDR S&P Home Builders (XHB) increased slightly by 0.4%. The SPDR Energy Select ETF (XLE) rose 2.7%, with XOM stock constituting a massive holding. The SPDR Financial Select ETF (45) increased by 0.1%%. SPDR Healthcare Sector Fund (XLV) decreased by 0.4%.
Blinking buy signals
BJ’s stock rose 7.2% to 74.09, trading at 71.10 point of purchase, albeit off its high of 77.47 shortly after the open. Investors could still buy the gap or use an intraday chart to see if BJ stock can break above the 75.50 zone, around most of Thursday’s trading. On Thursday, BJ’s Wholesale reported its third straight quarter of accelerating profit growth and a second quarter of faster revenue gains. The warehouse membership chain also guided up.
CSIQ stock jumped 15% to 45.19, retaining most of its intraday gains. Investors could buy Canadian Solar now or wait to see if it consolidates or pulls back modestly first.
Canadian Solar posted a 494% EPS gain with revenue up 62%. Energy-Solar Group is ranked #1 out of 197, with US-based company Enphase Energy (ENPH) leading the way.
Exxon stock rose 2.4% to 94.38, rebounding from its 50-day line and breaking a downtrend since it began its consolidation in early June. The official buy point is 105.67. As a diversified energy giant with heavy exposure to crude oil, natural gas and refining, Exxon Mobil is well positioned.
Vertex stock fell 1.65% to 294.29, falling for a third consecutive session in weak and declining volume. But stocks found support at the 21-day moving average. Investors could buy VRTX shares now or wait for some strength.
BBBY Stock crashes after a pump, dump
BBBY stock fell 19.6% to 18.55 on Thursday after a huge run in recent weeks. Late Wednesday, Ryan Cohen, president of original GameStop meme stock, announced plans to sell his Bed Bath & Beyond holdings.
Early Friday, BBBY plunged 44%, after Cohen revealed late Thursday that he had finished selling his stake.
In addition, Bed Bath & Beyond, which in the real world is a housewares company losing money with plummeting sales, reportedly hired a bankrupt law firm to help it deal with unmanageable debt load, Bloomberg reported Thursday evening, citing a source.
BBBY, up 132% for the week at Wednesday’s high, is now down significantly for the week, including the overnight drop.
As late as Monday night, Cohen disclosed significant out-of-the-money BBBY stock options, helping fuel strong Tuesday-Wednesday gains.
But, while GameStop’s Cohen offered a pump-and-dump catalyst, Bed Bath & Beyond’s stock follows a familiar “return to the meme” script. Meme stocks often have a massive gain that attracts media attention, followed by another large intraday gain that often fades or closes lower, with rapid declines thereafter.
As BBBY shares surged earlier in August, Tuesday’s 79% intraday gain – 29% at the close – in record volume caught the eye. On Wednesday, shares soared 45% intraday to a five-month high, but faded for a 12% advance near session lows.
As for other meme stocks, GME stock fell 6.4% after slipping 4% on Wednesday. AMC Entertainment (CMA) fell 9.7%, below its 200-day line. AMC stock plunged 14% on Wednesday.
GME and AMC shares fell overnight.
Market rally analysis
What if the market rally heralds a pullback, but it doesn’t show up? Major indexes have retreated slightly since the S&P 500 nearly hit its 200-day line on Tuesday, but none of the major indexes even touched the 10-day moving average.
The Dow continues to hold the 200-day moving average, with the S&P 500 and the Russell 2000 just below this key level.
The resilience of the market rally after a long period is impressive. But a bigger pullback would provide a chance for major stocks to form handles or retreat to the 21-day lines. The major indices themselves are only about 3% above the 21-day line.
Individual stocks and sectors will vary. Energy stocks are seeing a price rebound, with Exxon Mobil and several others issuing buy signals over the past few days. The solar names sound strong as the heavy construction, steel, and some hauling play comes into place.
Several chip names are coming in strong, as well as some retailers like BJ’s Wholesale.
Biotechs such as VRTX stocks are pulling back, which could provide their own buying opportunities.
The market rally could stall quietly for several days and then spike, but it could also go the other way. The Nasdaq was trading tightly at the end of last year, again in late March/early April and late May/early June. Either way, the muted action ended in a sell-off.
Friday’s retreat in Dow Jones futures could signal the start of a pullback, small or major. But an intraday dip of less than 1%, with major indexes paring losses, would be more consistent with a pause.
What to do now
That’s why investors shouldn’t get too aggressive right now. There are buying opportunities, and investors should consider them, but don’t add significant exposure with uncertain market direction in the very near term.
You can always consider taking partial profits along the way, as stocks are still likely to give up much of the recent gains as part of sector rotation. It is also a way to manage the overall exposure of your portfolio.
The market pullback and various sector moves are creating new setups, so don’t let up on your watchlists.
Lily The big picture every day to stay in tune with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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