Dow Jones futures fell on Friday morning, along with S&P 500 and Nasdaq futures, as Bitcoin and other cryptocurrencies fell overnight.
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The stock market rally may finally be ready for a pullback after a few days of hiatus. Major indexes rose on Thursday. A modest withdrawal would be constructive. Investors should be cautious about adding significant exposure in the very near future.
BJ’s Wholesale ( BJ ) and Canadian Solar ( CSIQ ) broke away from strong gain bases as both came from areas of strength in the market. Exxon Mobil ( XOM ) showed a buy signal as oil and gas stocks continue to lead with rising energy prices. Vertex Pharmaceuticals ( VRTX ) is pulling back, but it may be creating a new buying opportunity.
Meanwhile, Bed Bath & Beyond ( BBBY ) suffered a “meme reversal” and crashed overnight as GameStop ( GME ) chairman Ryan Cohen, a big investor in BBBY stock, cashed out. BBBY shares had fallen on Thursday after Cohen announced his plans to exit.
Earnings LOVED
Applied Materials’ earnings were better than expected in the fiscal third quarter, and the chip-equipment giant also guided higher. AMAT shares were little changed early Friday after rising modestly late Thursday. Shares of Applied Materials ( AMAT ) rose 2.1% to 108.27 on Wednesday. Shares of Applied Materials are still significantly below their 200-day moving average.
AMAT’s earnings could be good news for rival KLA Corp. (KLAC). Shares of KLAC were flat in extended trade after rising 1.85% to 382.02 on Thursday. It is working on a buy point at 399.06 cups with handle and is about to break a trendline at this handle, which would provide an early entry.
Vertex stock is listed on the IBD Leaderboard and IBD Big Cap 20. XOM stock is listed on SwingTrader.
Dow Jones futures today
Dow Jones futures sank 0.6% against fair value. S&P 500 futures fell 0.8%. Nasdaq 100 futures were down 1%.
Bitcoin fell nearly 8% from 24 hours earlier below $22,000, and suddenly fell on Friday morning. Ethereum and other major cryptocurrencies also sold off.
Crude oil futures sank nearly 2% and natural gas prices fell more than 1%.
The 10-year Treasury yield rose 5 basis points to 2.93%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
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Stock Exchange meeting
The stock rally traded in a tight range for most of Thursday’s session.
The Dow Jones Industrial Average was up less than 0.1% in Thursday’s trading. The S&P 500 index and the Nasdaq composite rose 0.2%. The small-cap Russell 2000 gained 0.7%.
The price of US crude rose 2.7% to $90.50 a barrel. Gasoline futures rose 3.1%. Natural gas futures fell 0.6% but are right at 14-year highs.
The 10-year Treasury yield fell 1 basis point to 2.88%.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.4%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.5%. The iShares Expanded Technology Software Sector ETF ( IGV ) lost a fraction. The VanEck Vectors Semiconductor ETF ( SMH ) advanced 1.4%, with AMAT shares a notable component.
The SPDR S&P Metals & Mining ETF (XME) rose 2.4% and the Global X US Infrastructure Development ETF (PAVE) rose 0.7%. 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 shares taking a massive turn. The Financial Select SPDR ETF ( XLF ) rose 0.1%%. The Select Healthcare Sector SPDR Fund ( XLV ) was down 0.4%.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 1.1% and the ARK Genomics ETF ( ARKG ) fell 1.2%.
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Flashing Stock Buy Signals
BJ’s shares rose 7.2% to 74.09, clearing a 71.10 buy point, though off their high of 77.47 shortly after the open. Investors could still buy the gap-up or use an intraday chart to see if BJ stock can break above the 75.50 area, around most of Thursday’s trading. BJ’s Wholesale reported early Thursday its third straight quarter of accelerating profit growth and a second quarter of faster revenue gains. The warehouse membership chain also guided higher.
Bigger rival Costco Wholesale ( COST ) rose 0.8% to 560.96, comfortably in a buy zone from a cup-with-handle base, according to MarketSmith analysis.
CSIQ shares rose 15% to 45.19, holding on to most of their intraday gains. Investors could buy Canadian Solar now or wait to see if it consolidates or retreats modestly first.
Canadian Solar reported an EPS gain of 494% on a 62% increase in revenue. The Energy-Solar group is ranked No. 1 out of 197, with US-based Enphase Energy ( ENPH ) at the top.
Shares of Exxon rose 2.4% to 94.38, rebounding from its 50-day line and breaking a downtrend since the start of its consolidation in early June. The official buy point is 105.67. As a diversified energy giant with heavy exposure to crude oil, natural gas and refining, Exxon Mobil is well positioned.
Vertex shares fell 1.65% to 294.29, retreating for the third straight session on low volume and down. But the stock found support at the 21-day moving average. Investors could buy shares of VRTX now or wait for some strength.
BBBY stock crashes after pump, dump
BBBY shares fell 19.6% to 18.55 on Thursday, after a big run in recent weeks. On Wednesday afternoon, Ryan Cohen, president of the original meme stock GameStop, announced plans to sell his shares of Bed Bath & Beyond.
By early Friday, BBBY was down 44%, after Cohen revealed Thursday night that he had finished selling his stake.
Also, Bed Bath & Beyond, which in the real world is a money-losing home goods company with falling sales, has hired a bankruptcy law firm to help it deal with a debt load uncontrollable, Bloomberg reported Thursday night, citing a source.
BBBY, up 132% for the week at Wednesday’s high, is now down significantly for the week, including the overnight dip.
As recently as Monday night, Cohen disclosed large out-of-the-money BBBY stock options, which helped fuel strong gains from Tuesday into Wednesday.
But while GameStop’s Cohen provided a pump-and-dump catalyst, Bed Bath & Beyond’s stock follows a familiar “meme reversal” script. Meme stocks typically have a massive gain that attracts widespread media attention, followed by a larger intraday gain that often fades or closes lower, with rapid declines afterward.
While BBBY shares had rallied in early August, Tuesday’s intraday gain of 79%, up 29% at the close, on record volume drew attention. Shares surged 45% intraday to a five-month high on Wednesday, but faded for a 12% advance near session lows.
In other meme stocks, GME shares fell 6.4% after falling 4% on Wednesday. AMC Entertainment ( AMC ) fell 9.7%, below its 200-day line. AMC shares fell 14% on Wednesday.
Shares of GME and AMC fell overnight.
Analysis of market concentration
What if the market rally declared a pullback, but the pullback didn’t show? The major indexes have retreated slightly since the S&P 500 nearly hit its 200-day line on Tuesday, but none of the major indexes have touched the 10-day moving average.
The Dow Jones continues to hold its 200-day moving average, with the S&P 500 and Russell 2000 just below that key level.
Market resistance after a strong stretch is impressive. But more than one pullback would provide an opportunity for major stocks to form handles or pull back to the 21-day lines. The major indices are only 3% or so above the 21-day line.
Individual stocks and sectors will vary. Energy stocks are coming in with prices rallying, with Exxon Mobil and several other buy signals flashing in recent days. Solar names look strong as heavy construction, steel and some transportation develop.
Several chip names are coming on strong, along with some retailers like BJ’s Wholesale.
Biotechs such as VRTX stock are pulling back, which could provide some buying opportunities of their own.
The market rally could stop quietly for several days and then pick up, but it could also go the other way. The Nasdaq is trading strongly at the end of last year, again in late March/early April and again in late May/early June. In all cases, the tame action ended with strong sales.
Friday’s pullback in Dow Jones futures could signal the start of a modest or major pullback. But an intraday decline of less than 1%, with the major indexes paring losses, would be more in line with a pause.
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what to do now
That’s why investors shouldn’t be too aggressive right now. There are some buying opportunities, and investors should be aware of them, but don’t add significantly to exposure with unclear market direction in the very near term.
You can still look to take some partial profits along the way, with the stock still prone to giving up much of its recent gains amid the sector’s turnover. This is also a way to manage the overall exposure of your portfolio.
Market pullbacks and multi-sector moves are creating new setups, so don’t get stuck on your watchlists.
Read The Big Picture every day to stay in sync with 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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