Dow Jones futures rose slightly Monday afternoon, along with S&P 500 futures and Nasdaq futures. Crude oil prices recovered as OPEC+ unexpectedly hit a small production cut. Meanwhile, Russia said natural gas flows to Europe will remain closed until Western sanctions are lifted.
The stock market rally fell sharply again last week and broke through important levels.
With the major indices moving south and few stocks looking healthy, investors should be in high cash and waiting for better terms.
Apple (AAPL) will take center stage this week, with the Dow Jones tech giant set to unveil the iPhone 14 on September 7.
Arista Networks (ANET) has a similar chart pattern to Apple’s, but ANET stock has some differences that can make it more attractive. However, ANET shares are definitely not executable.
In the meantime, Enphase Energy (ENPH), Lantheus (LNTH) and Neurocrine Life Sciences (NBIX) declines in consolidations after strong outbreaks. Are they setting up or ready to crack?
Lantheus shares are listed on IBD Leaderboard. ENPH stocks and Arista Networks are on the IBD Big Cap 20.
The video embedded in the article discussed the market action in depth while also analyzing Apple stock, Arista Networks and Enphase Energy.
Energy prices are rising
Crude oil futures were up more than 2%, outside Monday’s highs. OPEC and key allies such as Russia agreed to cut production quotas by 100,000 barrels per day in October. A production cut was on the table, but was not expected. It is unclear whether the actual output will drop much, as many cartel members did not meet the existing quota. Still, it signals OPEC+ concerns about prices and current crude oil supply and demand amid a weakening global economy.
Meanwhile, US natural gas prices soared after previously rising more than 3%. European natural gas prices rose after falling from stratospheric record highs last week. Russian state-owned company Gazprom shut down the Nord Stream 1 pipeline to Europe last week, reportedly for just three days of maintenance. But the pipeline failed to restore flows on Saturday. The Kremlin dropped pretense of maintenance problems and said on Monday that wet gas flows will not return to normal until the West lifts sanctions against the invasion of Ukraine. Europe has built up stocks for the winter.
Dow Jones Futures Today
Dow Jones futures were up 0.3% from fair value. S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.35%.
US stock markets were closed Monday for the Labor Day holiday, but other exchanges around the world were open. Dow futures will trade normally, closing at 1:00 PM ET and reopening at 6:00 PM ET.
China extends a Covid lockdown in Chengdu, the capital of the industrial province of Sichuan, home to 21 million people. Shenzhen coastal technology center, which underwent massive testing this weekend, now faces layered restrictions.
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.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live
stock market rally
The stock rally is a rally in name only. It extended recent losses but finished slightly above Thursday’s intraday lows.
The Dow Jones Industrial Average lost 3% in stock trading last week. The S&P 500 index lost 3.3%. The Nasdaq composite lost 4.2%. The small-cap Russell 2000 fell 4.7%
The 10-year Treasury yield rose 16 basis points to 3.19%, a fifth consecutive weekly gain despite a dip on Friday from a two-month high.
US crude oil futures fell 4.9% last week to $86.87 a barrel.
Natural gas futures plunged 5.2%, almost all of it on Friday.
One of the best ETFs was the Innovator IBD 50 ETF (FFTY) which fell 6.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 3.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 4.4%, with many highly regarded software names not in the IGV crashing last week. The VanEck Vectors Semiconductor ETF (SMH) fell 6.7%.
SPDR S&P Metals & Mining ETF (XME) plunged 8.4% last week, with steel stocks collapsing after some flashy buy signals last week. The Global X US Infrastructure Development ETF (PAVE) fell 4.6%. US Global Jets ETF (JETS) lost nearly 4%. SPDR S&P Homebuilders ETF (XHB) lost 3.3%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) fell 3.4%, albeit after three weekly gains. The Health Care Select Sector SPDR Fund (XLV) fell 1.8%.
As a result of more speculative story stocks, ARK Innovation ETF (ARKK) fell 5.25% and ARK Genomics ETF (ARKG) 5.1% last week.
Five best Chinese stocks to watch right now
Apple stock vs. ANET stock
Apple stock fell 4.8% last week to 155.81, slipping below the 200-day mark and finally below the 50-day mark. AAPL stock still has a buy point of 176.25, but the handle is looking less and less attractive.
The relative strength line remains close to highs. That shows that Apple stocks are falling largely in line with the S&P 500.
Apple’s earnings fell in the last quarter, with analysts seeing single-digit earnings per share growth in fiscal 2022 and 2023.
ANET shares fell 4.7% to 117.30 and also undercut the 200-day line, moving upward on Friday. Shares did not fall all the way to their 50-day line during the week, although they did test their 10-week line. Arista stock has a buy point of 132.97 handle in a double bottom base.
Meanwhile, Arista’s earnings and revenue growth have accelerated over the past three quarters, with earnings per share up 59% and revenue of 49% in the second quarter. Analysts see EPS growth of 40% in 2022 and 13% in 2023.
Arista’s earnings can be considered more vulnerable than Apple’s. A sharp cut in corporate IT spending could hit network stocks, while demand for Apple iPhone and services appears to be more stable.
Other stocks to watch
ENPH shares fell 3.3% to 279.07 last week, but traded relatively tight, holding support around the 21-day moving average. The solar leader is trading relatively tight and could be flat on a weekly chart after another week. Enphase stocks may also continue to slide — or move sideways — to test the 50-day and 10-week rising lines. That could present a buying opportunity, assuming ENPH shares bounce from there.
Shares of NBIX fell 1.8% to 103.01 last week, closing around the 21-day line. On Friday morning, Neurocrine bounced off that level and was near a short trendline entry, but returned lower as the market reversed. NBIX stocks are not far from its 50-day line, which currently roughly coincides with the previous 100.10 buy point. The biotech needs a few more weeks to form a good foundation.
LNTH stock fell 3.7% to 78.48 last week, closing slightly below the 21-day line, according to MarketSmith’s analysis. The 21-day or fast-rising 50-day could provide new entry into Lantheus, which cleared an earlier base in August but in wild action.
Fed plans emergency landing for US economy
Market rally analysis
The stock rally is a rally in name only. Since the S&P 500 stopped just below the 200-day moving average on Aug. 16, major indices have been retreating. Fed chief Jerome Powell’s Aug. 26 speech in Jackson Hole, signaling a more aggressive, gloomier Fed, prompted a sharper sell-off.
Over the past week, all major indices fell below their 50-day moving averages. They did bounce off Thursday’s intraday lows, with the Nasdaq composite just avoiding undershooting the late July lows.
On Friday morning, indices rebounded on the August jobs report, which showed strong hiring, but also a much-anticipated jump in the workforce. But after the S&P 500 and Russell 2000 hit their 50-day lines, the indices took a nasty turn.
The 50-day moving average now acts as a ceiling versus support. Getting above that level is key, but only a first test. The 21-day line is another key level, which roughly coincides with steep downward trends in the Nasdaq and S&P 500. But the real key would be to get above the 200-day moving average.
On the other hand, the Nasdaq’s undercutting Thursday’s lows would likely mark the official end of the much ailed market rally.
Many leading stocks have taken a lot of damage in the past week. While some stocks like ENPH and NBIX are holding up relatively well, they are not making progress.
The potential leaders Apple and ANET stocks are not falling much more than the broader market. It is an example of why investors want to buy stocks amid a rising market trend.
Energy stocks are in their own world of oil and gas prices, but are subject to wide price swings, sometimes at the whim of autocratic leaders. OPEC+’s production cut and Russia’s decision to explicitly suspend supplies of natural gas until sanctions are lifted could hurt energy supplies on Tuesday.
Time the Market with IBD .’s ETF Market Strategy
What to do now
Investors should have minimal exposure and patiently prepare for a better market environment. Until the major indices regain their 50 or 21 day moving averages, investors should probably not consider new purchases. The only exception may be oil and gas names, but investors should be wary even there.
The rapid rise and turn of the 50-day line may have presented some shorting opportunities. Another attempt at the 50 days could do this again in the coming days.
So you build up long and short watchlists, which probably need a lot of changes from a week ago. On the bright side, focus on stocks with strong relative strength, even if they don’t have ideal patterns.
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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