Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures. Applied materials (AMAT) reported after the close, while BBBY stock collapsed overnight. The stock market rally is pulling back near the main resistance, but really not retreating, with the major indices moving higher on Thursday.
That’s a sign of strength, but a modest retreat would be constructive. Investors should be careful about adding significant exposure in the very near future.
BJ’s Wholesale (BJ) and Canadian solar energy (CSIQ) fell from the bottom on strong gains, as both come from areas with strong market. Exxon Mobil (XOM) flashed a buy signal as oil and gas stocks continue to lead with rising energy prices. Vertex Pharmaceuticals (VRTX) pulls out, but may create a new buying opportunity.
In the meantime, Bed Bath & More (BBBY) suffered a “return to the meme”, which collapsed Thursday after GameStop (GME) Chairman Ryan Cohen, a major BBY stock investor, announced plans to cash out. BBBY stock continued to crash overnight as Cohen completed his quick exit.
Applied Materials earnings came in better than expected in the third quarter, with the chip equipment giant also outperforming. AMAT stock climbed modestly in overnight trading, near a two-month high. Shares of the chip equipment giant rose 2.1% to 108.27 on Wednesday. But Applied Materials stock is still significantly below the 200-day moving average.
AMAT earnings could be good news for rival KLA Corp. (CLACK). KLAC shares were silent in extended trading after rising 1.85% to 382.02 on Thursday. It is working on a 399.06 cup-with-handle buy point, and is about to break a trendline in that handle, which would provide early access.
Vertex stocks are listed on IBD Leaderboard and the IBD Big Cap 20. XOM stocks are listed on SwingTrader.
Dow Jones Futures Today
Dow Jones futures tilted lower relative to fair value. S&P 500 futures fell 0.1%. Nasdaq 100 futures fell, even with a slight boost from AMAT stocks.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
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stock market rally
The stock rally traded within a narrow range for most of Thursday’s session.
The Dow Jones Industrial Average rose less than 0.1% in Thursday’s trading. The S&P 500 index and Nasdaq composite climbed 0.2%. The small cap Russell 2000 won 0.7%.
The price of crude oil in the US rose 2.7% to $90.50 a barrel. Gasoline futures were up 3.1%. Natural gas futures fell 0.6% but are right at the highest level in 14 years.
The 10-year yield fell by 1 basis point to 2.88%.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was up 1.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) lost a fraction. The VanEck Vectors Semiconductor ETF (SMH) rose 1.4%, with AMAT stocks a notable component.
SPDR S&P Metals & Mining ETF (XME) climbed 2.4% and the Global X US Infrastructure Development ETF (PAVE) 0.7%. The US Global Jets ETF (JETS) fell 0.3%. SPDR S&P Homebuilders ETF (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) rose 2.7%, with XOM stocks holding a huge stake. The Financial Select SPDR ETF (XLF) was up 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.4%.
As a result of more speculative story stocks, ARK Innovation ETF (ARKK) fell 1.1% and ARK Genomics ETF (ARKG) fell 1.2%.
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Stocks Flashing Buy Signals
BJ’s stock rose 7.2% to 74.09, giving a buy point of 71.10, although shortly after opening the high set of 77.47. Investors can still buy the gap-up or use an intraday chart to see if BJ’s shares can top the 75.50 area around most of Thursday’s trading. BJ’s Wholesale announced early Thursday that it was the third consecutive quarter of accelerating earnings growth and a second quarter of faster sales growth. The warehouse’s membership chain also led higher.
bigger rival Costco Wholesale (COST) rose 0.8% to 560.96, comfortably in a head-to-head buying zone, according to MarketSmith’s analysis.
CSIQ stocks spiked 15% to 45.19, holding most of its intraday gains. Investors can buy Canadian Solar now or wait and see if it consolidates first or retreats modestly.
Canadian Solar reported earnings per share of 494% and sales growth of 62%. The Energy-Solar group is rated No. 1 out of 197, with US-based Enphase Energy (ENPH) in front.
Exxon stock rose 2.4% to 94.38, bounced off its 50-day line and broke a downward trend from the start of consolidation in early June. The official point of sale is 105.67. As a diversified energy giant with significant exposure to crude oil, natural gas and refining, Exxon Mobil is well positioned.
Vertex shares fell 1.65% to 294.29 and retreated for a third straight session in low, declining volume. But stocks found support at the 21-day moving average. Investors can buy VRTX stock now or wait for a bit of strength.
BBBY stock crashes after pump, dump
Shares of BBBY fell 19.6% to 18.55 on Thursday, after a huge run in recent weeks. Late Wednesday, Ryan Cohen, chairman of original meme stock GameStop, announced plans to sell his Bed Bath & Beyond holdings. Late Thursday, BBBY plunged 44%, when Cohen revealed he was done selling his stake.
In addition, Bed Bath & Beyond, which is a real-world money-losing homewares company with declining sales, has reportedly hired a bankruptcy attorney to help it tackle an unmanageable debt load, Bloomberg reported Thursday evening, citing a source.
BBBY, up 132% for the week from Wednesday’s high, is now down significantly for the week, including the after-hours plunge.
It wasn’t until Monday evening that Cohen announced major out-of-the-money BBY stock options, which yielded hefty gains Tuesday-Wednesday.
But while GameStop’s Cohen offered a pump-and-dump catalyst, Bed Bath & Beyond follows a familiar “return to the meme” script. Meme stocks often have huge gains that get broad media coverage, followed by another big intraday gain that often fades or closes lower, followed by rapid declines.
While BBBY shares had surged earlier in August, Tuesday’s 79% intraday gain — 29% at the close — in record volume drew attention. On Wednesday, shares rose 45% over the course of the day to a five-month high, but faded to a 12% advance, near session lows.
As for other meme stocks, GME stock fell 6.4% after falling 4% on Wednesday. AMC entertainment (AMC) fell 9.7%, below the 200-day mark. AMC shares fell 14% on Wednesday.
GME shares and AMC fell overnight.
Market rally analysis
What if the market rally announced a pullback, but the pullback didn’t show up? Major indices have slipped slightly since the S&P 500 nearly touched its 200-day line on Tuesday, but none of the major indices have even hit the 10-day moving average.
The Dow Jones continues to hold the 200-day moving average, with the S&P 500 index and Russell 2000 just below that key level.
The resilience of the market rally after a strong period is impressive. But more of a pullback would present an opportunity for leading stocks to form handles or pull back to the 21-day lines. The major indices themselves are only 3% or so above the 21-day line.
Individual stocks and sectors will vary. Energy stocks are emerging with prices rallying, with Exxon Mobil and several others providing buy signals in recent days. Solar names look strong, while heavy construction, steel, and some transportation come into play.
Several chip names are on the rise along with some retailers such as BJ’s Wholesale.
Biotech companies like VRTX stocks are pulling back, potentially opening up buying opportunities of their own.
The market rally could stand still for a few days and then move higher, but it could also go the other way. The Nasdaq traded solidly late last year, again in late March/early April and late May/early June. In any case, the tame promotion ended with a sharp sell-off.
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What to do now
Therefore, investors should not get too aggressive now. There are some buying opportunities, and investors should consider these, but do not add significant exposure, as the market direction is unclear in the very short term.
You may still want to consider taking some partial gains along the way, as stocks still tend to give up much of recent gains amid sector rotation. That’s also one way to manage your overall portfolio exposure.
The market slump and moves in different sectors are creating new settings, so don’t miss out on your watchlists.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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