Futures: Market Turns Upside Down; What To Do Now

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Smartsheet (SMAR) and GameStop (GME) tumbled late on earnings.

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The stock market rally had a mixed session. The Nasdaq retreated from 2023 highs while the Dow Jones edged higher. Meanwhile, small-cap and mid-cap stocks continued their recent resurgence.

Software, e-commerce and tech titans struggled, including Microsoft (MSFT), Google parent Alphabet (GOOGL), Amazon.com (AMZN), ServiceNow (NOW) and Shopify (SHOP).

Chips retreated, but held up better than many tech sectors. Nvidia (NVDA) fell modestly but stayed within its recent range.

Tesla (TSLA) extended its win streak, though it closed off its fresh 2023 highs.

A variety of housing-related stocks and groups stood out.

The recent action may be a healthy corrective for what has been a narrow market rally. Still, there were few buying opportunities Wednesday and reasons to exit or pare positions in some hard-hit names.

Floor & Decor (FND) was actionable after making a bullish move above the 50-day line within a base. Mobileye (MBLY) flashed a buy signal but closed in the lower half of its range. Biogen (BIIB), technically already in a buy zone, rebounded bullishly from the 50-day line on a hopeful sign for FDA approval of its latest Alzheimer’s drug.

NVDA stock, Shopify and Tesla are on IBD Leaderboard. FND stock is on SwingTrader. MSFT stock is on IBD Long-Term Leaders. NOW stock is on the IBD 50 and IBD Big Cap 20.

Dow Jones Futures Today

Dow Jones futures were flat vs. fair value. S&P 500 futures tilted higher and Nasdaq 100 futures were steady.

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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Key Earnings

SMAR stock plunged 19% overnight. Smartsheet earnings topped Q1 EPS and sales views. But billings fell short. The workplace management software maker also gave full-year EPS, revenue and cash flow guidance that suggests some underperformance for the rest of the year. Shares tumbled 5.15% to 49 in Wednesday’s regular session. dropping back to around a 48.99 buy point. Smartsheet stock rallied 4.8% on Wednesday.

GME stock dived 19% after hours, signaling a move below key moving averages. GameStop reported a wider-than-expected loss and revenue decline. The mall-based video game retailer and meme stock pioneer also fired CEO Matt Furlong and named big investor Ryan Cohen as executive chairman. GameStop stock rose 5.75% to 26.11 on Wednesday. GME stock has been working on a 27 buy point from a bottoming base.

Biogen Alzheimer’s Drug

FDA staff documents for Friday’s advisory panel for Biogen’s Alzheimer’s therapy Leqembi had no surprises, analysts said Wednesday. That raised hopes that the committee will recommend approval. Biogen stock staged an upside reversal around the 50-day line, rising 1.7% to 304.90.

BIIB stock remains in range of a 296.90 double-bottom buy point, originally cleared April 28. Wednesday’s renewed strength offered a new buying opportunity near the 50-day and breaking a one-month downtrend.

Stock Market Rally

The stock market rally saw the Nasdaq retreat as many big techs fell solidly, but other sectors held up well or advanced.

The Dow Jones Industrial Average rose 0.3% in Wednesday’s stock market trading. The S&P 500 index slipped 0.4%. The Nasdaq composite slumped 1.3%, its worst loss since April 25. The small-cap Russell 2000 jumped 1.8%, while the S&P MidCap 400 leapt 1.5%.

U.S. crude oil prices climbed 1.10% to $72.53 a barrel.

The 10-year Treasury yield popped 8 basis points to 3.78%. However, T-bill rates generally fell. The 1-month T-bill sank below 5% after teasing 6% in late May just before the debt-ceiling deal.

Markets are still betting that the Federal Reserve will pause next week. However, the Bank of Canada unexpectedly raised rates on Wednesday, a day after Australia’s central bank also defied expectations.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) skidded 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) tumbled 3.1%, with Microsoft and ServiceNow stock major holdings and SMAR stock also in IGV. The VanEck Vectors Semiconductor ETF (SMH) slipped 0.6%. Nvidia stock is a major holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 1% and ARK Genomics ETF (ARKG) lost just over 1%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs. SHOP stock is also is a big holding.

SPDR S&P Metals & Mining ETF (XME) was up 1.3% and the Global X U.S. Infrastructure Development ETF (PAVE) ran 2.1%. U.S. Global Jets ETF (JETS) ascended 0.6%. SPDR S&P Homebuilders ETF (XHB) stepped up 1.5%, with FND stock a notable holding. The Energy Select SPDR ETF (XLE) rebounded 2.7%. The Health Care Select Sector SPDR Fund (XLV) slipped 0.4%. BIIB stock is in XLV.

The Financial Select SPDR ETF (XLF) edged up 0.4%. The SPDR S&P Regional Banking ETF (KRE) gained 3.3%.

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Market Rally Analysis

The stock market rally saw highflying areas retreat while other segments took up the reins.

The Nasdaq staged an outside, downside day after hitting a fresh 52-week high soon after the open. The composite and the Nasdaq 100 had been getting stretched. The overall Nasdaq is now 6.2% above the 50-day line and the big-cap Nasdaq 100 6.9%, still somewhat elevated.

The S&P 500 edged lower, still right around 2023 highs.

The Dow Jones rose slightly after finding support at the 50-day line on Tuesday.

Meanwhile, the Russell 2000 and S&P MidCap 400 kept powering ahead, helped by rebounding bank stocks.

The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell just over 1%, but better than the Nasdaq 100’s 1.7% loss.

The Invesco S&P 500 Equal Weight ETF (RSP) gained 0.7%.

Advancers led decliners by nearly 2-to-1 on the NYSE and by a solid margin on the Nasdaq.

Overall, the market rally action could be positive. Yes, we’d all like stocks to go up every day, but that can’t happen. So some of the big winners pausing or modestly pulling back is healthy. Meanwhile, market breadth continues to widen out.

Of course, if the Nasdaq keeps selling off, and the broader market also falters, Wednesday’s potentially “constructive” action may turn out to be the start of a “destructive” slide.

Key Sectors, Stocks

The housing sector, including homebuilders, building materials, home furnishing retailers, were solid or strong. So were energy, steel and infrastructure plays. Some of these names, such as FND stock, flashed buy signals, while others broke above key levels. Many need a lot of repair work, though.

Tech titans, software names, e-commerce and medical products had a tough day. For some, it was a noticeable but normal pullback after a long run. MSFT stock fell 3.1%. Google stock ceded 3.8% in a downside reversal. Amazon stock slumped 4.25% and NOW stock 4.9%.

However, others suffered more technical damage. SHOP stock retreated 6.4%, undercutting Tuesday’s early entry. Workday (WDAY) fell 5.4% and Cloudflare (NET) plunged 8.5%, both dropping buy points. DXCM stock tumbled 4.5%, once again reversing from near a traditional buy point and back toward its 50-day.

Chips did OK overall. MBLY stock climbed 2.8%, but well off early highs, closing below a downtrend break. Nvidia stock slid 3%, below its 10-day line as it trades within a range since its May 25 post-earnings gap up.

Tesla stock rose 1.5% to 224.57, off session highs of 280.83. But it was the ninth straight advance and the eighth straight in above-average volume. TSLA stock is extended from a 207.79 buy point. The relative strength line is at a seven-month high. As of Tuesday night, Tesla has started discounting Model 3 Long Range inventory by 1% in the U.S. Tesla has already offered sizeable inventory discounts on other Model 3 variants.

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What To Do Now

The market rally rotation seems orderly and constructive. But some stocks are retreating below key levels, while many rising stocks are not yet in position. Investors don’t know if the rotation will continue, or if it will get more volatile.

Right now, buying opportunities are relatively light, while investors may want or need to reduce or exit some positions.

Hopefully, the market action will create a slew of chances, from big winners setting up again and potential leaders breaking out. Look for these stocks by running screens and updating watchlists.

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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