Dow Jones futures rose Thursday morning, along with S&P 500 futures and Nasdaq futures, thought they are off morning highs. The stock market extended losses Wednesday even as the 10-year Treasury yield retreated modestly.
Alcoa and United Airlines reported earnings after Wednesday's close. American Airlines, Travelers, Union Pacific and Baker Hughes are on tap early Thursday.
The software sector has been among the hardest hit over the past several weeks. Microsoft stock and Palo Alto Networks gained ground on Wednesday, while Fortinet and New Relic reversed lower, but outperformed the general market. All are below their 50-day lines, especially Microsoft. But these are a handful of software stocks that you may want to keep your eye on for the next stock market rally.
Meanwhile, tech titan Apple continues to look better than just about any big tech stock. But Apple stock fell 2.1% on Wednesday to 166.23, finally closing below its 50-day line.
Microsoft stock is on IBD Leaderboard. FTNT stock and Microsoft are IBD Long-Term Leaders.
Key Earnings
Alcoa earnings easily beat views while sales narrowly topped. AA stock rose modestly in extended trade. Shares dipped 0.7% on Wednesday, but are holding their 21-day line, near highs.
United Airlines reported a smaller-than-expected Q4 loss as revenue topped, but guidance on costs and capacity disappointed investors. UAL stock fell slightly in premarket action after closing down 2.65%, below its 50-day line.
American Airlines reported a loss and revenue that were slightly better than expected. AAL stock rose slightly before the open. Shares slumped 3% Wednesday after dropping below their 50-day line on Tuesday.
Travelers easily beat Q4 EPS view for the Dow Jones insurance giant. TRV stock rose solidly before the open, signaling a move back above a 163.39 buy point. Shares fell 2.1% on Wednesday.
Union Pacific earnings modestly topped views. UNP stock fell slightly before the open, already modestly below its 50-day line
Baker Hughes earnings came in below views, while revenue was essentially in line. BKR stock edged higher, slightly below a 27.76 buy point.
Meanwhile, ocean transport firm Matson preannounced Q4 EPS far above views late Tuesday. MATX stock jumped 7% before the open, near an official 93.27 cup-with-handle buy point but signaling an aggressive entry as well.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value, boosted by TRV stock and Microsoft, S&P 500 futures advanced 0.35% and Nasdaq 100 futures climbed 0.8%. All signaled stronger gains earlier this morning.
The 10-year Treasury yield was steady at 1.83%. Crude oil prices edged lower.
China's central bank cut some key lending rates, continuing to try to bolster a flagging economy. U.S.-listed Chinese stocks, which have had a rough past 12 months, rebounded Thursday.
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 Correction Wednesday
The stock market opened higher Wednesday but reversed lower and closed near session lows.
The Dow Jones Industrial Average lost nearly 1% in Wednesday's stock market trading. The S&P 500 index retreated 1%. The Nasdaq composite, up more than 1% soon after the open, fell 1.15%. The small-cap Russell 2000 slumped 1.6%.
The 10-year Treasury yield fell about 4 basis points to 1.83%, retreating from two-year highs. U.S. crude oil prices climbed 1.8% to $86.96 a barrel, continuing to set multiyear highs. Soaring energy prices raise the prospect of higher inflation, or at least staying high for longer.
Among the best ETFs, the Innovator IBD 50 ETF tumbled 3.2%, while the Innovator IBD Breakout Opportunities ETF retreated 1.8%. The iShares Expanded Tech-Software Sector ETF eked out a 0.1% gain after a solid morning advance. MSFT stock is a major IGV holding, with Fortinet, Palo Alto and New Relic also in the ETF. The VanEck Vectors Semiconductor ETF skidded 2.8%.
SPDR S&P Metals & Mining ETF dipped 0.1%, with AA stock a notable holding. The Global X U.S. Infrastructure Development ETF sank 1.2%. U.S. Global Jets ETF descended 1.6%. SPDR S&P Homebuilders ETF gave up 1.85%. The Energy Select SPDR ETF retreated 0.7% and the Financial Select SPDR ETF fell 1.7%. The Health Care Select Sector SPDR Fund edged down 0.4%
Reflecting more-speculative story stocks, ARK Innovation ETF fell 1.5% and ARK Genomics ETF 1.8%, hitting 18-month and 19-month lows, respectively.
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Microsoft Stock
Microsoft stock edged up 0.2% to 303.33, after running up to 313.90 intraday. That follows Tuesday's 2.4% decline to a three-month low amid the market sell-off and Microsoft's $69 billion takeover deal for Activision Blizzard. MSFT stock is in a flat base with a 349.77 buy point, according to MarketSmith analysis, but shares are still 8% below their now-declining 50-day line. This stock definitely has repair work to do.
The relative strength line for Microsoft stock has retreated from November highs, but that's after a solid advance for most of last year.
Microsoft earnings are due next Tuesday. Revenue growth has accelerated for the past four quarters. Earnings growth picked up for three quarters in a row before cooling to a still-solid 25% in the September-ending quarter.
Fortinet Stock
Fortinet stock was one of the last software holdouts, breaking out to a new high in late 2021. But the cybersecurity leader sold off hard to start the new year. FTNT stock has bounced a little from its Jan. 6 lows, but is still below its 50-day line. Shares dipped 0.4% to 307.16 on Wednesday.
Fortinet stock fell back from intraday highs of 323.16, hitting resistance near its 21-day line.
The RS line for FTNT stock is not far from highs.
Fortinet earnings are due Feb. 3.
Palo Alto Stock
Palo Alto stock rose 3.4% to 519.61, closing in on its 50-day line. Like Fortinet, PANW stock hit a new high late last year, then tumbled to start 2022. The RS line for Palo Alto is close to highs.
New Relic Stock
NEWR stock got above its 50-day line intraday, which might have signaled an early entry in a better market. But New Relic stock closed down 0.4% at 105.61. The official buy point is 129.80.
New Relic was once a leader in data analytics software, but shares plunged in 2019 and the company lost money in fiscal 2021 and is expect to do so again in FY 2022 ending in March. But profits are seen returning in the next fiscal year.
NEWR stock gapped up 38.5% on its last earnings report in early November. New Relic earnings for fiscal Q4 2022 are due on Feb. 8.
Stock Market Correction Analysis
The stock market entered a correction after Tuesday's fierce sell-off to break below key levels. It wasn't surprising to see the market try to bounce. But even with solid earnings and bond yields edging lower, the major indexes barely got out of the starting gate before backing off and reversing lower.
But that's classic market correction behavior: Open strong, close weak.
The Nasdaq composite, already below its 200-day line, seems headed for its early October low. That would roughly coincide with the February 2021 peak. The big-cap Nasdaq 100, led by Apple stock and Microsoft, is nearing its 200-day line. The Dow Jones and S&P 500 index aren't far behind.
The Russell 2000, which undercut its December lows on Tuesday, fell to its lowest level in more than a year, undercutting a long consolidation.
Software rose slightly Wednesday, led by PANW stock and a few others, but closed well off highs. The sector has been ground zero for growth woes in recent months.
Meanwhile, recent market leadership is now struggling. Financials had another losing session. Mixed bank earnings and lower Treasury yields didn't help. Energy stocks fell even as crude oil prices continued to race higher.
Just 39.8% of investment newsletters were bullish in the latest weekly reading, matching the lowest since shortly after the coronavirus crash. Some 60.2% saw a correction or bear market.
The CBOE Volatility Index, or VIX, has risen considerably in 2022, but the so-called market fear gauge is well off its December highs, let alone much bigger fear spikes.
In any case, the bulls-bears reading and the VIX are secondary indicators. The major indexes and leading stocks are the primary indicators, and they look terrible.
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What To Do Now
Even if the major indexes rally strongly for a full session or two, that's not enough to get excited. The stock market has had a number of one-, two- or three-day advances over the past couple of months, but the overall trend has been lower.
Investors should look for a follow-through day. First, a market rally attempt needs to take hold for a few days. We aren't even on day one.
IBD founder Bill O'Neil is a lifelong optimist, but don't confuse consistent optimism for eternal bullishness. You can believe that the stock market will have great opportunities in 2022, and you're almost certainly right. But that doesn't mean you should be bullish right now.
Instead of being bullheaded in a market correction, continue looking for tomorrow's big winners. Look for stocks with strong relative strength, holding key support levels. But relative strength is constantly in motion, especially in stock market corrections.
Apple stock, Qualcomm and Builders FirstSource, which had held their 50-day lines as of Tuesday, broke through that key level on Wednesday.
So keep adjusting your watchlists. Perhaps a few software names such as Microsoft and Fortinet will start to reassert relative strength, or perhaps they'll lag or even break down. Let the market be your guide.
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