Dow Jones futures rose slightly Monday morning, along with S&P 500 futures and Nasdaq futures. Treasury yields rebounded.
The stock market rally had a mixed week but had a disappointing finish. The major indexes rose initially but hit resistance, with the Nasdaq leading losses Friday. Meanwhile, market breadth was weak. The Russell 2000 reversed lower toward 2023 lows. Tech leaders started strong, but backed off, sometimes violently.
All of this was an expectation breaker for the market rally. Investors should be cautious about new buys with the market rally struggling and earnings season picking up steam. Selling some recent buys may be warranted.
Tesla is set to report its worst earnings in two years, but TSLA stock has held up as bulls look to future possible growth drivers.
Lam Research and ASML kick off results for chip-equipment makers, with huge customer Taiwan Semiconductor also reporting. ASML stock is struggling, but LRCX stock and fellow chip-gear giants Applied Materials, KLA Corp. are setting up.
Oil-services giant SLB kicks off energy earnings with energy stocks showing renewed strength. SLB stock is close to an early entry.
In addition to Tesla stock, Lam Research, Applied Materials, KLA and SLB, investors should also watch tech leaders Arista Networks, Adobe and Nvidia.
Nvidia stock, Tesla and Arista Networks are on IBD Leaderboard. Nvidia, Adobe and Tesla stock are on the IBD 50. ADBE stock, Tesla, Nvidia and SLB are on the IBD Big Cap 20.
Lululemon Athletica will join the S&P 500 index before the open on Wednesday, S&P Dow Jones Indices announced late Friday. LULU stock jumped early Monday, signaling a possible early entry.
Beijing will boost deficit spending to fuel a flagging economy, Chinese state media reported over the weekend, following a Bloomberg report last week.
Dow Jones Futures Today
Dow Jones futures advanced 0.4% vs. fair value. S&P 500 futures rose 0.25%. Nasdaq 100 futures climbed about 0.1%. Apple, Nvidia and Tesla stock all fell about 1%, weighing on Nasdaq futures.
The 10-year Treasury yield bond rose several basis points to 4.7%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally Expectation Breaker
The stock market rally started the week strong, extending gains from the Nasdaq's Oct. 6 follow-through day, helped by tumbling Treasury yields. But the major indexes stalled out amid whipsaw Treasury moves, while underlying market action was weaker.
The Dow Jones Industrial Average climbed 0.8% in last week's stock market trading. The S&P 500 index advanced 0.45%. The Nasdaq composite fell 0.2%, thanks to Friday's 1.2% retreat.
The Nasdaq cleared the 21-day and later the 50-day line, but fell back below those key levels by the end of the week. The S&P 500 also finished below its 21-day average. The Dow Jones hit resistance at the 200-day line multiple times.
The Russell 2000, which tried to retake its fast-falling 21-day line, reversed for a 1.5% weekly loss, ending at a five-month closing low.
The Invesco S&P 500 Equal Weight ETF rose 0.2%, but fell back from the 21-day line as well.
Leading tech stocks made bullish moves, but then fell back. Some energy and pharma stocks did well. Insurers continue to do well, along with select other financials.
The 10-year Treasury yield tumbled more than 15 basis points to 4.63%, but with some big daily swings. Notably, the U.S. dollar extended its long weekly winning streak.
U.S. crude oil futures jumped 5.9% to $87.69 a barrel for the week. Friday's 5.8% spike was the biggest one-day gain in six months. Gasoline futures popped 3.3% for the week and 4.6% on Friday. Israel-Hamas fighting triggered gains over the week, with tougher U.S. sanctions vs. Russian crude helping to spur Friday's advance.
Overall, the stock market rally had an expectation breaker. At Wednesday's close, with the Nasdaq above the 50-day line and leading stocks showing positive action in a confirmed uptrend, the expectation was for further gains. Instead, the market saw significant losses late in the week.
One positive: The CBOE Volatility Index, a market fear gauge, jumped Friday, nearly topping a recent five-month high. Fear levels hitting new highs raise the odds of a bounce.
Friday's overall action in stocks, crude oil and the VIX may reflect concerns about a looming Israeli ground offensive in Gaza, and the potential for wider Mideast conflict.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 0.5% last week. The iShares Expanded Tech-Software Sector ETF edged up 0.2%, but came well off highs. The VanEck Vectors Semiconductor ETF finished essentially flat after Friday's 2.5% slide. Nvidia and TSM stock are huge SMH holdings, with LRCX, ASML, AMAT and KLAC also big component.
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 3.7% last week to a five-month closing low. and ARK Genomics ETF sold off 4.4% to the lowest since the March 2020 Covid low. Tesla stock is the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF fell 0.7% last week. The Energy Select SPDR ETF jumped 4.5% and the Health Care Select Sector SPDR Fund inched up 0.1%, slashing gains. The Industrial Select Sector SPDR Fund gained 1%, but also off highs.
The Financial Select SPDR ETF climbed 0.5% and the SPDR S&P Regional Banking ETF fell 1.6%.
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Tesla Earnings
Tesla earnings are due Wednesday night. Analysts have been cutting third-quarter forecasts all year, with further cuts since the EV giant's weak Q3 deliveries. Wall Street currently expects earnings per share to tumble 30% to 73 cents, which would be the lowest EPS in two years. Revenue should rise 10% vs. a year earlier, but slip vs. Q2. Gross profit margins are expected to fall further amid ongoing price cuts.
But the focus will be on the Tesla earnings call. Investors will want positive signals on gross margins, especially with price cuts continuing in October. They'll also want to know more about the Cybertruck, including a launch date and much more. They'll also want any hints about other potential growth drivers.
After shrugging off a stream of bad news, Tesla stock fell 3.6% to 251.12 last week, testing the 50-day line Friday. Shares have a 278.98 cup-with-handle base. Investors could use the Oct. 10 high of 268.94 as an early entry.
TSLA stock fell 1% early Monday, signaling a move below the 50-day.
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Chip Earnings
ASML earnings are due early Wednesday. Analysts expect the Dutch semiconductor-equipment giant to report a 1% EPS decline with a 7% revenue rise.
Lam Research earnings are set for Wednesday night. EPS should tumble 41% with revenue down 30.5%.
Taiwan Semiconductor earnings are on tap early Thursday. The foundry giant, which makes chips for Nvidia, Apple and many others, is seen reporting a 35% EPS drop with revenue off 14.5%. Taiwan Semi's guidance and capital spending plans will key for the sector, especially chip-equipment makers.
ASML stock edged up 0.4% last week, trying to break a three-month slide but still below key levels. TSM rose 1.3% to 90.46 last week, reclaiming the 50-day and 200-day lines Thursday but falling below levels on Friday.
LRCX stock rose popped 2.7% to 645.12, but fell back below the 50-day line on Friday. Lam Research has a 711.91 buy point from a double-bottom base. Investors could use a move above Thursday's high of 655 as an aggressive entry, with a trendline entry around 685.
Meanwhile, Applied Materials and KLA stock don't report this coming week, but both are building the right side of bases.
SLB Earnings
SLB, formerly known as Schlumberger, reports Friday morning. Analysts see SLB earnings up 22% with revenue climbing 17.5%. Both would mark the second quarter of slowing growth as comparisons get tougher.
SLB's results and guidance will be important for the energy sector, especially for the services firms, drillers and machinery plays that have been leading.
SLB stock jumped 5.8% to 58.96 this past week, retaking the 50-day line Friday. A trendline, currently around 60.50, would offer an early entry in an emerging flat base.
Stocks To Watch
Other stocks to watch including Nvidia, Arista Networks and Adobe.
Nvidia stock edged down 0.7% to 454.61 last week, slumping 3.2% on Friday. The AI chip giant has a 502.66 buy point from a cup base. Early in the week, NVDA stock arguably flashed an aggressive entry. At this point, investors should to focus on the traditional entry, or see if Nvidia stock can forge a handle. The relative strength line, which tracks a stock's performance vs. the S&P 500, has been hitting new highs on a weekly chart.
A significant retreat for Nvidia stock would be a bad sign for the market rally.
ADBE stock jumped 4.2% to 548.76 for the week, briefly clearing a flat-base buy point of 570.24. The entry is still actionable, though a brief cause could be constructive. The RS line is at highs.
ANET stock fell 2.15% to 189.85, but found support at its 50-day line. Shares aren't far from a 198.70 buy point from a flat base, according to MarketSmith. It's part of a base-on-base pattern. The RS line is near highs.
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What To Do Now
It's still a stock market rally, but there are worrisome signs. It needs to hold its ground and, soon, make some progress.
The Nasdaq and the S&P 500 need to decisively clear the 50-day line, with breadth improving. That would likely coincide with a slew of new buying opportunities. So investors should have their watchlists ready. Focus on stocks showing relative strength.
But if the market shows further deterioration, investors should be looking to scale back. Some promising stocks fell sharply late in the week, already triggering sell signals.
So stay engaged and remain flexible.
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