Dow Jones futures rose modestly Monday afternoon, along with S&P 500 futures and Nasdaq futures. Crude oil prices rebounded as OPEC+ unexpectedly agreed on a small production cut. Meanwhile, Russia said natural gas flows to Europe will remain shut until Western sanctions are lifted.
The stock market rally fell sharply again last week, breaking through key levels.
With the major indexes heading south and few stocks looking healthy, investors should have a large cash position and wait for better conditions.
Apple (AAPL) will be in focus this week, with the Dow Jones tech giant set to unveil the iPhone 14 on Sept. 7. Apple stock had been setting up until plunging over the last several sessions along with the broader market.
Arista Networks (ANET) has a similar chart pattern to Apple’s, but ANET stock has some differences that may make it more attractive. ANET stock certainly isn’t actionable, however.
The video embedded in the article reviewed the market action in depth, while also analyzing Apple stock, Arista Networks and Enphase Energy.
Energy Prices Rise
Crude oil futures rose more than 2%, off Monday highs. OPEC and key allies such as Russia agreed to cut production quotas by 100,000 barrels per day in October. A production cut had been on the table but wasn’t expected. It’s unclear if actual output will fall much at all, because many cartel members weren’t meeting existing quotas. Still, it sends a signal about OPEC+ concerns about prices and current crude supply and demand amid a weakening global economy.
Meanwhile, U.S. natural gas prices edged higher after rising more 3% earlier. European natural gas prices spiked after plunging last week from stratospheric record highs. Russia’s state-owned Gazprom last week shut down the Nord Stream 1 pipeline to Europe, allegedly for just three days of maintenance. But the pipeline didn’t restore flows on Saturday. Dropping the pretense of maintenance issues, the Kremlin said Monday that natgas flows won’t return to normal until the West lifts sanctions over its Ukraine invasion. Europe has been building up supplies for the winter.
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures climbed 0.4% and Nasdaq 100 futures advanced 0.45%.
U.S. stock markets will be closed Monday for the Labor Day holiday, but other exchanges around the world were open. Dow futures will trade normally, closing at 1 p.m. ET and reopening at 6 p.m. ET.
China is extending a Covid lockdown in Chengdu, the capital of the industrial Sichuan province and home to 21 million people. Coastal tech hub Shenzhen, which underwent mass testing this weekend, now faces tiered restrictions.
Stock Market Rally
The stock market rally is a rally in name only. It extended recent losses, though finishing slightly above Thursday’s intraday lows.
The Dow Jones Industrial Average gave up 3% in last week’s stock market trading. The S&P 500 index shed 3.3%. The Nasdaq composite retreated 4.2%. The small-cap Russell 2000 tumbled 4.7%
The 10-year Treasury yield soared 16 basis points to 3.19%, a fifth straight weekly gain despite dipping Friday from two-month highs.
U.S. crude oil futures fell 4.9% to $86.87 a barrel last week.
Natural gas futures tumbled 5.2%, almost all of that on Friday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 6.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 3.5%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 4.4%, with many highly valued software names not in IGV crashing last week. The VanEck Vectors Semiconductor ETF (SMH) plunged 6.7%.
SPDR S&P Metals & Mining ETF (XME) dived 8.4% last week, with steel stocks melting down after some flashed buy signals last week. The Global X U.S. Infrastructure Development ETF (PAVE) fell back 4.6%. U.S. Global Jets ETF (JETS) lost nearly 4%. SPDR S&P Homebuilders ETF (XHB) shed 3.3%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) retreated 3.4%, though after three weekly gains. The Health Care Select Sector SPDR Fund (XLV) fell 1.8%.
Apple Stock Vs. ANET Stock
Apple stock fell 4.8% to 155.81 last week, tumbling below the 200-day line and finally the 50-day line. AAPL stock still has a 176.25 handle buy point, but the handle is looking less and less appealing.
The relative strength line remains close to highs. That shows that Apple stock is largely falling in line with the S&P 500.
Apple earnings fell in the latest quarter with analysts seeing single-digit EPS growth in fiscal 2022 and 2023.
ANET stock sank 4.7% to 117.30, also undercutting its 200-day line, with a Friday bounce fizzling. Shares didn’t quite fall to their 50-day line during the week, though they did test their 10-week line. Arista stock has a 132.97 handle buy point in a double-bottom base.
Meanwhile, Arista earnings and sales growth have accelerated for the past three quarters, with EPS up 59% and revenue 49% in Q2. Analysts see 40% EPS growth in 2022 and 13% in 2023.
Arista’s earnings might be seen as more vulnerable than Apple’s. A big cut in corporate IT spending could hit networking stocks while Apple iPhone and services demand seems steadier.
Other Stocks To Watch
ENPH stock fell 3.3% last week to 279.07, but has been trading relatively tight and is holding support around the 21-day moving average. The solar power leader is trading relatively tightly, and could have a flat base on a weekly chart after another week. Enphase stock also could keep sliding — or move sideways — to test the fast-rising 50-day and 10-week lines. That could offer a buying opportunity, assuming ENPH stock bounces from there.
NBIX stock slid 1.8% last week to 103.01, closing around its 21-day line. On Friday morning, Neurocrine bounced off that level and was near 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 prior 100.10 buy point. The biotech needs another couple of weeks to form a proper base.
LNTH stock sank 3.7% last week to 78.48, closing slightly below the 21-day line, according to MarketSmith analysis. The 21-day or fast-rising 50-day could offer a new entry in Lantheus, which cleared a prior base in August, but in some wild action.
Market Rally Analysis
The stock market rally is a rally in name only. Ever since the S&P 500 stopped just short of its 200-day moving average on Aug. 16, the major indexes have been in retreat. Fed chief Jerome Powell’s Aug. 26 Jackson Hole speech, signaling a more-aggressive, gloomier Fed, triggered a sharper sell-off.
This past week, all the key indexes tumbled below their 50-day moving averages. They did bounce off Thursday’s intraday lows, with the Nasdaq composite just avoiding an undercut of its late July lows.
On Friday morning, the indexes rebounded on the August jobs report, which showed robust hiring but also a long-hoped-for jump in the labor force. But after the S&P 500 and Russell 2000 came up to their 50-day lines, the indexes staged an ugly reversal.
The 50-day moving average is now acting as a ceiling vs. support. Getting above that level is key, but just a first test. The 21-day line is another key level, roughly coinciding with steep downtrends in the Nasdaq and S&P 500. But the real key would be getting above the 200-day moving average.
On the flip side, the Nasdaq undercutting Thursday’s lows would likely mean the official end of the much-ailing market rally.
Many leading stocks have suffered a lot of damage in the past week. While some stocks such as ENPH and NBIX are holding up relatively well, they aren’t making headway.
Would-be leaders Apple and ANET stock aren’t falling much more than the broader market. It’s an example of why investors want to be buying stocks amid a market uptrend.
Energy stocks are in their own world of oil and gas prices, but are subject to big swings in prices, sometimes on the whims of autocratic leaders. The OPEC+ production cut and Russia’s decision to explicit suspend natural gas shipments until sanctions are lifted may provide a tailwind to energy stocks on Tuesday.
What To Do Now
Investors should have minimal exposure and patiently prepare for a better market environment. Until the major indexes regain their 50-day or 21-day moving averages, investors probably shouldn’t consider new buys. The one exception might be oil and gas names, but investors should tread warily even there.
The quick rise and reversal from the 50-day line may have offered some shorting opportunities. Another attempt at the 50-day could do so again in the coming days.
So build up your long and short watchlists, which likely will need 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 sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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