Dow Jones Futures: Why This Market Rally Is So Dangerous; Tesla is approaching Bear lows on this move

Dow Jones futures rose modestly early Thursday, along with S&P 500 and Nasdaq futures. The rally in the stock market had a flat to lower session on Wednesday.

The Nasdaq led decliners as Apple ( AAPL ), Google parent Alphabet ( GOOGL ) and Tesla shares extended big weekly losses. Shares of Apple and Google broke below some support levels while Tesla ( TSLA ) is closing at bear market lows.

Tesla continued to slide on Thursday in various news.

The sideways action of the last few weeks has been a challenge to buy strength. Turbulent markets cut off investors. Not a good time to add exposure.

Late Wednesday, the Pentagon said Amazon.com ( AMZN ), Google, Microsoft ( MSFT ) and Oracle ( ORCL ) won cloud computing contracts that could reach a combined $9 billion through 2028. In 2019 , the Department of Defense awarded a cloud of $10 billion. – IT contract, but canceled that deal in 2021 amid Amazon’s objections.

All four tech giants were little changed in after-hours trading.

Dow Jones futures today

Dow Jones futures were up 0.4% at fair value. S&P 500 futures rose 0.4% and Nasdaq 100 futures rose 0.45%.

The 10-year Treasury yield rose 6 basis points to 3.47%.

Crude oil futures rose nearly 4% after hitting 2022 lows on Wednesday. The Keystone pipeline has been shut down due to a spill.

Copper rose 1%.

The Hang Seng index recovered 3.4%, resuming its recent uptrend, as local media reported that Hong Kong is considering ending its outdoor mask rule. US-listed Chinese stocks were pointing solidly higher.

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 was trading slightly lower for most of Wednesday’s session, closing broadly in the red.

The Dow Jones Industrial Average was up less than two points on Wednesday. The S&P 500 index fell 0.2%. The Nasdaq composite fell 0.5%. The small-cap Russell 2000 declined 0.3%.

US crude prices fell 3% to $72.01 a barrel, continuing to fall on fears of global demand. Gasoline futures sank 3.4% to a one-year low. Natural gas prices rose 4.6% after a sharp five-session decline.

The yield on the 10-year Treasury fell 10 basis points to 3.41%, hitting the lowest level in nearly three months.

The inverse relationship between stock and bond yields is diminishing because Treasury yields are falling more on recession fears than to ease inflationary pressures. A domestic November CPI report on December 13 would still be welcomed. While a half-point rate hike on Dec. 14 looks highly likely, progress in inflation would raise hopes for smaller hikes in early 2023 and an early end to tightening. This would reduce the risks of a fall, or at least a hard landing.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) fell 0.5%. The VanEck Vectors Semiconductor ETF (SMH) closed just below breakeven. Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) fell 0.8% and the ARK Genomics ETF (ARKG) rose 0.3%. TSLA stock is a major holding in Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) fell 0.3% and the Global X US Infrastructure Development ETF ( PAVE ) lost a fraction. US Global Jets ETF (JETS) fell 3.3%. SPDR S&P Homebuilders ETF ( XHB ) rose 1.8%. The Energy Select SPDR ETF ( XLE ) was down 0.2% and the Financial Select SPDR ETF ( XLF ) was down 0.4%. The Select Health Sector SPDR Fund ( XLV ) rose 0.8%.

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Apple Stock and Google Stock

Apple shares fell 1.4% to 140.94 on Wednesday, hitting their lowest level since Nov. 10. So far this week, AAPL shares have fallen 4.65%, undercutting its 50-day line. The Dow Jones tech titan is nearing its Oct. 13 low of 134.37, but is still some distance from its June 16 bearish low of 129.04.

Google shares fell 2.1% to 94.94, below its 50-day line. Shares of GOOGL are down 5.4% this week, erasing the gains of the previous three weeks. The stock is still comfortably above its Nov. 3 bearish low of 83.34.

Tesla stock

Tesla shares slipped 3.2% to 174.04 on Wednesday, off a bear market low of 166.19 set on Nov. 22. Shares are down 10.7% so far this week. TSLA shares are down more than 50% in 2022.

On Wednesday, Tesla cut China prices by 6,000 yuan for cars in inventory. Along with insurance subsidies, free charging and other goodies, Tesla is offering more than 21,000 yuan in incentives for cars on the lot. This follows a price cut at the end of October in China. And it comes ahead of government subsidies for electric vehicles that end on December 31, which should boost demand. This also comes amid widespread reports, denied by Tesla, of Shanghai production cuts.

Tesla’s Shanghai plant will shorten production shifts and delay the introduction of some new hires due to weak demand in China, sources told Bloomberg. This follows recent widespread reports, denied by Tesla, that the electric vehicle giant would cut Shanghai production by 20%.

Meanwhile, Tesla China chief Tom Zhu has been tapped to run the Austin plant and ramp up production there, Bloomberg reported Thursday.

Elon Musk’s bankers may offer him new margin loans backed by Tesla stock to replace some of Twitter’s high-interest debt, Bloomberg reported Wednesday night. Banks have struggled to offload Twitter’s debt. Musk has already put up many of his Tesla shares as collateral.

Shares of TSLA fell modestly early Thursday.

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Analysis of market concentration

The rally in the stock market continued its pullback, although the technical picture did not change significantly.

The Nasdaq tested its 50-day line, a day after falling below its 21-day moving average. Shares of Apple, Google and Tesla weighed on the large-cap indexes, but the underlying trend was also slightly lower.

In general, the major indexes have been trending higher since the October 13 lows, especially the Dow Jones and the S&P 500. The market recovery appeared to be gaining momentum late last week, with the S&P 500 above its 200-day line and the Dow Jones hitting a seven-month high.

But with the recent pullback, the major indexes and the Russell 2000 are essentially where they were in early November or late October.

Lateral markets are among the most dangerous for investors, especially when there is upward and downward volatility. There is enough upside to attract buyers, but then the market goes down for a while. This forces investors to cut losses when they are small, with a good chance the stock will recover, or risk a much bigger drop.

The current choppy market rally has an added hurdle. Most of the advance has occurred in a handful of one-day sessions, so it is difficult to have even mini-uptrends to generate gains in new positions.

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what to do now

The rally in the stock market has hit resistance and is testing some key levels, but is not yet badly damaged. If you have modest exposure with positions that work, you don’t need to go out. Taking partial profits is never a bad idea in this market, of course.

But there’s a strong chance that anyone who bought stocks in recent weeks, as they broke out or issued early buy signals, will go short on these holdings. In a sideways and choppy market, when stocks start to look interesting, they may be about to top out.

Investors should be wary of adding exposure until the market can clear the recent trading range, with the S&P 500 decisively above its 200-day line. That may not happen until after next week’s CPI inflation report and the Fed meeting.

Even then, investors should increase positions slowly, in case the major indexes pull back again after reaching near-term highs.

But keep working on those watchlists. Industrial and infrastructure works look good, along with a variety of medicals. Some brokers patrol the points of purchase. The chip team names show relative strength, with a number of semiconductor plays holding OK.

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Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.