Dow Jones Futures Fall: Market Rally Continues to Increase, But Here’s Why the S&P 500 May Stop

Dow Jones futures fell modestly overnight, along with S&P 500 futures and Nasdaq futures. A strong stock market rally on Tuesday morning faded, turning briefly mixed after Russian missiles reportedly hit Poland.



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Objective (TGT) headlined Wednesday morning’s gains, while the chip giant Nvidia (NVDA) looms Wednesday night.

The stock market soared Tuesday morning on another docile inflation report. Walmart Earnings (WMT) also helped. So did Warren Buffett’s Berkshire Hathaway revealing he’s taken a big new position in Taiwan semiconductor (TSM).

Major indexes trimmed gains slightly but then quickly turned mixed on news reports on Russian missiles. But the Dow has recovered to return positive.

Poland missile attack

By mid-afternoon, stocks faltered on reports that Russian missiles hit Przewodow, a Polish village just across the border from Ukraine. The missiles reportedly killed two people. It is possible that the Russian missiles strayed from targets in Ukraine, or that the Ukrainian military shot down the missiles, landing in Poland. Moscow launched massive attacks on Ukrainian cities on Tuesday.

Russia has denied any responsibility. Poland said the strike appeared to be an “isolated incident”.

Deliberately striking Poland would be extremely dangerous. All NATO members are committed to defending all other members from attack. NATO ambassadors are meeting Wednesday morning for a consultation on Article 4, not the more aggressive defense provision of Article 5. But a much broader conventional war would increase the risks of nuclear weapons, creating an existential threat to the world and , of course, for the stock market.

Putting aside the news of Poland’s rocket attack, the market rally could be due to a pause after a strong run and the S&P 500 is approaching key resistance.

Yet, MercadoLibre (MELI) e Pure archiving (PSTG) canceled Buy Points on Tuesday, even as PSTG stock withdrew official entry for a second consecutive session.

Retail earnings

Objective, Lowes (LOW) e TJXCos. (TJX) reports earnings early Wednesday, along with October retail sales. This follows the Dow Jones giants Walmart and Home storage (HD) earnings early Tuesday. WMT stock jumped 6.5% on strong gains, guidance and a large buyback, breaking above a buy handle point. HD stock rose 1.6%, trying to forge a handle.

TGT stock rose 3.6% on Tuesday but met resistance at the 200-day line, near a basic buy point. Lowe’s advanced 2.15%, working on a basic handle. TJX stock was up 2.9%, still in range over a 10-month cup-with-a-handle basis.

Nvidia reports Wednesday evening. Nvidia stock rose 2.3% on Tuesday, adding to last month’s big gains, supporting the chip sector. Strong earnings and guidance from Nvidia, as well as the chip equipment giant Applied materials (AMAT) on Thursday night, will be important for the sector and a broader market rally.

The video embedded in this article discussed Tuesday’s market rally and analyzed MELI, Pure Storage and stocks Albemarle (SHIRT).

MercadoLibre stock joined the IBD leaderboard and was Tuesday’s IBD stock of the day. ALB stock is on the Leaderboard watchlist. MercadoLibre and PSTG shares are on SwingTrader. Pure Storage is on the IBD 50.

Dow Jones Futures today

Dow Jones futures fell 0.3% from fair value. S&P 500 and Nasdaq 100 futures fell 0.3%.

The 10-year Treasury yield fell 2 basis points to 3.78%.

Amazon.com (AMZN) began cutting corporate and tech workers on Tuesday, according to LinkedIn posts from affected Amazon personnel. The e-commerce and cloud computing giant is reportedly planning to cut 10,000 jobs. AMZN shares are down 1% overnight.

On Tuesday evening, former President Donald Trump launched his 2024 candidacy for the White House.

October retail sales are scheduled for 8:30 AM ET. Economists expect the Commerce Department to report an increase of 1%, or just 0.2% excluding autos and gas.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market rebound

The equity market rally started strongly as the producer price index came in lower than expected, with core PPI flat compared to September. Walmart’s earnings also helped. TSM shares skyrocketed 10.5% on Tuesday night news that Warren Buffett had taken a stake. Buffett’s Berkshire also took on new positions and new stakes Louisiana-Pacific (LPX) and Jefferies (JEF).

But major indexes trimmed gains, with the Dow briefly turning negative on news of Russian missiles hitting Poland.

The Dow Jones Industrial Average was up 0.2% in stock market trading on Tuesday, even with shares of WMT and Home Depot providing upside. The S&P 500 index rose 0.5%. The Nasdaq composite was up 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 also declined.

US crude prices rose 1.2% to $86.92 a barrel after briefly climbing more than 3% on Russian missile news. Natural gas futures advanced 1.7%.

ETF

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) is up 1.4%. The iShares Expanded Tech-Software Sector (IGV) ETF gained 2.3%. The VanEck Vector Semiconductor (SMH) ETF jumped 3.15%, with Taiwan Semi and Nvidia stocking huge components, along with AMAT.

SPDR S&P Metals & Mining ETF (XME) was up 0.85%. SPDR S&P Homebuilders ETF (XHB) advanced 2.1%, with HD shares and significant holdings from Lowe. The Energy Select SPDR ETF (XLE) was up just over 1% and the Financial Select SPDR ETF (XLF) was up 0.2%. The Health Care Select Sector SPDR Fund (XLV) fell 0.1%.

Reflecting stocks in more speculative history, ARK Innovation ETF (ARKK) was up 2.7% and ARK Genomics ETF (ARKG) was just above breakeven.


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Actions near purchase points

MELI shares shot up 6.4% to 1,020.68, clearing a buy point of 1,018.10 cups with a handle. MercadoLibre’s volume was lower than normal, but the recent consolidation has a streak of gains on above-average volume. The Latin American e-commerce giant enjoys strong earnings growth.

PSTG stock rose 1.6% to 31.56. Intraday, Pure Storage came in at 32.47, erasing the 32.07 cup-with-handle buy point for a second straight session, but failing to close above that entry, according to MarketSmith. PSTG stock finished right in with a 32.57 early entry.

The data storage company also enjoys strong earnings growth.

Analysis of market rallies

The stock market rally started strong on Tuesday, booming on the PPI inflation report. But major indexes retreated from intraday highs, then turned mixed on reports of Poland’s missile attack.

Perhaps the inflation/Fed narrative has changed. But that doesn’t mean the major indexes can’t face resistance, especially after a strong recent run. And, as Tuesday’s action demonstrated, there is always the potential for geopolitics or other wild cards to reverse a market trend.

The Dow Jones and the Russell 2000 both broke above their 200-day moving averages. The S&P 500 is approaching the 200-day line, where it met strong resistance on August 16th.

The Nasdaq is moving from its 50 days into its 200 days, but it still has a long way to go.

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

The tech giants are bouncing with the market, but they’re definitely not in the lead. Many titans hit bear market lows just last week. The one semi-exception is Nvidia stock, which has rallied over the past month. But the chip giant is also still working on its 200-day lineup.

However, many sectors are showing strength.

Solar, grid, contract electronics, and several medical product companies are doing well. So there are a select number of chips, with many more looking to set. A large number of housing-related stocks look attractive, from builders to suppliers to housing retailers.

Other retailers look good, including WMT stock, BJ wholesale (BJ) and Ulta beauty (ULTA). BJ reports on Thursday.

Trucking companies are surging, as investors bet the worst is over, or at least discounted, for shipping stocks.

Biotech and health insurers have stalled or backed out, but are generally in decent shape. Energy stocks are also doing well, although many look stretched.


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what to do now

Major indexes look strong, more stocks are flashing buy signals and setting up. Inflation data may have reached a tipping point, raising the prospect of a slowdown in Fed rate hikes and perhaps an end to tightening in the not-too-distant future.

So 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.

Don’t chase extended stock. Be wary of buying stocks that are significantly extended from their 50-day moving averages, even if they are in official buy zones. Don’t be too focused. A lithium-focused portfolio like Albemarle would be burned on Tuesday.

But work through those checklists, stay engaged, and be ready to take action.

Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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