Dow Jones futures were little changed, along with S&P 500 futures and Nasdaq futures, with Dow giant Walt Disney (DIS) headlining after-hours earnings. The stock market rally had another strong gain Wednesday, with Thursday’s CPI inflation report looming large.
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The S&P 500 and Nasdaq composite came right up to last week’s highs, a key resistance area. Fortinet (FTNT) flashed a buy signal, a rare growth stock in play as many of Wednesday’s big movers were beaten-down former leaders.
DIS stock, MGM Resorts (MGM), Twilio (TWLO) and Molina Health (MOH) reported earnings late Wednesday. Expedia (EXPE) and Datadog (DDOG) are on tap early Thursday.
DIS stock jumped in extended trade and TWLO stock skyrocketed, but both are well off highs. MGM stock rose modestly, near a breakout. MOH stock was not active overnight
Inflation Report
But the big news before Thursday’s market open will be the January consumer price index. The Labor Department will release the CPI report at 8:30 a.m. ET. Economists expect to see the consumer price index up 7.3% vs. a year earlier, above December’s 39-year high of 7%.
The Federal Reserve is going to start raising interest rates in March, with some speculation of a 50-basis point hike, so a hot inflation reading could trigger stock market selling and spiking Treasury yields. But a tame inflation reading could fuel a relief rally in stocks and bond prices.
Fortinet stock rose 4.8% on Wednesday to 329.84, reclaiming its 50-day line, though on light volume. Investors could have taken position in FTNT stock, either as an early entry or as an IBD Long-Term Leader. After this week, Fortinet stock should have a base with a 371.87 buy point. The relative strength line for FTNT stock is just below record highs, according to MarketSmith analysis.
Cybersecurity peer Palo Alto Networks (PANW) has a similar chart to that of Fortinet, but PANW stock has earnings on tap next week, raising the risks.
Fortinet joined IBD Leaderboard, with EXPE stock already on that list as an earnings options play. FTNT stock also is an IBD Long-Term Leader.
Dow Jones Futures Today
Dow Jones futures rose 0.15% vs. fair value, getting a boost from Disney stock. S&P 500 futures and Nasdaq 100 futures fell 0.1%.
The 8:30 a.m. ET inflation data and weekly jobless claims figures will likely swing Dow Jones futures before the open.
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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Stock Market Rally
The stock market rally opened solidly higher and gradually strengthened during the session.
The Dow Jones Industrial Average climbed 0.9% in Wednesday’s stock market trading. The S&P 500 index popped 1.45%. The Nasdaq composite jumped 2.1%. The small-cap Russell 2000 rose 1.9%.
The 10-year Treasury yield dipped 2 basis points to 1.93%. U.S. crude oil futures edged up 0.3% to $89.66 per barrel.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) popped 2.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.5%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 3.2%, with FTNT stock and Palo Alto Networks both components. The VanEck Vectors Semiconductor ETF (SMH) ran up 3.5%.
SPDR S&P Metals & Mining ETF (XME) rose 2.25% and Global X U.S. Infrastructure Development ETF (PAVE) advanced 2%. U.S. Global Jets ETF (JETS) ascended 2.7%. SPDR S&P Homebuilders ETF (XHB) climbed 2.3%. The Energy Select SPDR ETF (XLE) picked up 0.8% and the Financial Select SPDR ETF (XLF) 0.6%. The Health Care Select Sector SPDR Fund (XLV) advanced 0.8%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) leapt 5.1% and ARK Genomics ETF (ARKG) 5.2%.
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Key Earnings
Disney earnings and Disney+ subscribers were much higher than expected, while revenue also topped views. DIS stock jumped 7% overnight, signaling a move above a long-sliding 50-day line. Shares rose 3.4% to 147.29 on Wednesday, but still far below 52-week highs.
Molina Health earnings topped views while 2022 guidance was mixed. MOH stock was not active in extended action. Shares dipped 0.1% to 307.42 on Wednesday, after rebounding from their 50-day line on Tuesday, following strong results from Centene (CNC). Molina stock is on track to have a new base with a 328.21 buy point after this week. CNC stock and Anthem (ANTM) are in buy zones.
Twilio reported a smaller-than-expected loss and easily beat revenue views, with the communications software firm also guiding up on current-quarter revenue. TWLO stock spiked nearly 20% in overnight trade. Twilio stock rose 1.3% to 202.04 on Wednesday, well more than 50% below the February 2021 all-time high of 457.30.
MGM earnings and revenue easily beat views. MGM stock rose modestly in extended action. Shares climbed 2.8% on Wednesday to 48.52. MGM stock has a 51.27 buy point, but already cleared an early entry of 46.74 on Tuesday. The relative strength line for MGM stock is just below a 52-week high.
Another travel-related play, Expedia, is due before Thursday’s open. EXPE stock advanced 1.6% to 196.95 on Wednesday. Expedia stock broke out of a base on Tuesday.
The Expedia and MGM earnings reports, and Disney to a lesser extent, should give some insight into travel.
DDOG stock climbed 2.5% to 155.50 on Wednesday, just below its 50-day line. Datadog stock was one of the last software names to crack, tumbling to start 2022. But it found support at its 200-day line and has started to bounce back.
The Twilio and Datadog earnings reports, along with Cloudflare (NET) late Thursday, will offer a snapshot of former high-growth software leaders.
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Market Rally Analysis
For a second straight session, the stock market rally enjoyed strong gains, closing near session highs.
The Nasdaq composite moved above its 21-day moving average, settling just below last week’s high. the 200-day and 50-day lines loom as future resistance. The S&P 500 also is just below last week’s high, with the 50-day line fractionally above that.
Getting above their recent ranges would be a bullish signal for the S&P 500 and Nasdaq. It’s probably a good thing that these two main indexes didn’t break above last week’s highs just ahead of the CPI inflation report.
The Dow Jones popped above last week’s high and its 50-day line on Wednesday.
The Russell 2000 also cleared last week’s high. On Tuesday, the small-cap index had a follow-through day, belatedly joining the S&P 500 and Nasdaq composite. Like the Nasdaq, the Russell has work to do to reclaim its 50- and 200-day lines.
With the indexes approaching or clearing some resistance, more stocks are shaping up and flashing buy signals such as Fortinet, Palo Alto and EXPE stock. Still, beaten-down stocks led Wednesday’s advance. It’s good to see some of these names rebound, but many need a lot of repair work.
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What To Do Now
Overnight, you should take a good look at your watchlists, and hone in stocks that could be actionable soon.
What should you do during Thursday’s session? Well, that likely depends on the consumer price index, and how the market reacts. Another decent gain would likely push the S&P 500 and Nasdaq above last week’s highs, with the former possibly reclaiming its 50-day line as well. That would a positive signal to increase exposure somewhat, but not to load up on stocks in a frenzy.
On the other hand, a hot inflation report could trigger a market sell-off Thursday would take new buys off the table, with investors perhaps paring back on some new positions.
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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