Dow Jones futures tilted higher Tuesday night, along with S&P 500 futures and Nasdaq futures, as weak Chinese economic data offset a late boost from a Microsoft stock buyback. The stock market rally on Tuesday once again opened higher but then faded, continuing a recent bearish trend. Apple (AAPL) fell as it unveiled the iPhone 13 and other new products.
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Microsoft (MSFT) late Tuesday announced an 11% quarterly dividend hike to 62 cents a share. The tech giant also announced a $60 billion Microsoft stock buyback program. MSFT stock rose 1% in overnight trade.
Tech giants and chip stocks are holding up reasonably well. MSFT stock, Applied Materials (AMAT), Entegris (ENTG), KLA Corp. (KLAC) and Advanced Micro Devices (AMD) are worth watching. Microsoft, Applied Materials and AMD stock are trying to bounce from their 50-day or 10-week lines. ENTG stock and KLA cleared buy points, at least intraday, after flashing early entries previously.
But investors primarily should be watching, not buying, intriguing stocks as the market rally pulls back.
Microsoft and Apple stock are on IBD Leaderboard. MSFT stock is on IBD Long-Term Leaders. AMAT stock was Tuesday’s IBD Stock Of The Day. ENTG stock was Friday’s Stock Of The Day.
The video embedded in this article analyzed the market action and reviewed Deckers Outdoor (DECK), Microsoft and AMD stock.
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Dow Jones Futures Today
Dow Jones futures were 0.1% above fair value. S&P 500 futures and Nasdaq 100 futures climbed 0.1%.
Microsoft is offering a slim lift to the Dow Jones, S&P 500 and Nasdaq composite, but Dow futures briefly erased modest gains on weak Chinese economic reports.
Chinese retail sales rose just 2.5% vs. a year earlier, far below estimates of 7% and July’s 8.5%. Industrial output climbed 5.3%, missing views for 5.8% and slowing from July’s 6.4%. China’s economy has come under pressure amid Beijing’s crackdown vs. private enterprise and lockdowns in response to various Covid outbreaks.
Early Wednesday, U.S. investors will get the September Empire State manufacturing index and the August industrial production report.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally opened higher following cooler-than-expected consumer inflation data. But the early modest gains didn’t last.
The Dow Jones Industrial Average sank 0.8% in Tuesday’s stock market trading. The S&P 500 index retreated 0.6%. The Nasdaq composite declined 0.45%. The small-cap Russell 2000 slumped 1.3%.
The Nasdaq has fallen for five straight sessions. The Dow Jones, S&P 500 and Russell 2000 have declined in six of the last seven.
Macau-focused casinos plunged as China mulls new restrictions for the Asian gaming hub. Comcast (CMCSA) tumbled on weaker broadband growth.
Top ETFs
Growth stocks generally did OK overall Tuesday. Meanwhile, many other sectors lost ground.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.25%, after slumping 2.7% on Monday. The Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.1%. Microsoft stock is a top IGV holding. The VanEck Vectors Semiconductor ETF (SMH) ticked 0.1% higher. AMD stock, AMAT and KLA are key SMH component.
SPDR S&P Metals & Mining ETF (XME) sank 1.95% and Global X U.S. Infrastructure Development ETF (PAVE) 1.3%. U.S. Global Jets ETF (JETS) fell 1.2%. SPDR S&P Homebuilders ETF (XHB) declined 1.5%. The Energy Select SPDR ETF (XLE) gave up 1.4% and the Financial Select SPDR ETF (XLF) 1.3%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 1.1% and ARK Genomics ETF (ARKG) lost 1.3%.
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Apple iPhone 13 Unveiled
Apple touted four versions of the iPhone 13, offering incremental upgrades to last year’s iPhone 12 series, the company’s first 5G handsets. The Dow Jones tech titan also unveiled the Apple Watch Series 7 wearables, with larger displays and faster charging. Apple also showed off new iPad models.
Apple stock fell nearly 1% to 148.12. It closed just above its 50-day moving average. AAPL stock reversed from record highs last week, losing 3.45% as a federal judge dealt a blow to its App Store money machine.
Stocks To Watch
Microsoft stock rose 0.9% to 299.79 on Tuesday, rebounding slightly from its 10-week line. MSFT stock effectively has a three-weeks tight, offering a 305.94 buy point. That tight action potentially could turn into a flat base, but not until the end of next week. Shares are flirting with breaking a short trend line. Doing so, along with the 10-week line bounce, would provide a slightly early entry.
MSFT stock rose 1% in overnight trade, suggesting a potential buy opportunity Wednesday morning.
AMAT stock edged up 0.5% to 140.14, making a third straight slim gain from its 50-day line. That could offer an early entry. Investors could use either 145.35 or 146.10 as an official buy point. AMAT stock has flirted with new highs for several months, only to pull back.
Entegris stock climbed 3.2% to 128.06, moving above a 126.51 flat-base buy point, according to MarketSmith analysis. That’s after ENTG stock rebounded from its 50-day line starting late last week, offering an early entry.
KLA stock rose as high as 364.79 but faded to close up 0.2% to 356.39. It’s the third straight session in which the chip-gear maker cleared a 356.81 cup-with-handle buy point but failed to close above it. On Thursday, KLA stock flashed an early buy signal, breaking a short trend line and clearing some short-term resistance.
AMD stock advanced 0.9% to 105.73 after finding support at its 10-week line on Monday. Shares are close to breaking a short trend line, which would offer an early entry along with the 50-day bounce. After this week, AMD stock is on track to have a new consolidation with a 122.49 buy point. It would be a base-on-base pattern, sitting on top of a longer cup-with-handle base.
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Market Rally Analysis
Strictly looking at the closes, the stock market rally is in the midst of a normal pullback. The S&P 500 index is drifting toward its 50-day line while the Nasdaq composite is around its 21-day moving average. The Dow Jones keeps hitting resistance at its 50-day line. The Russell 2000 has fallen through its 50-day and is closing in on its 200-day line.
The S&P 500 has rebounded from near its 50-day line multiple times in recent months. Perhaps the market rally will do so again, creating another wave of buying opportunities. But that hasn’t happened yet.
Meanwhile, bullish opens, weak closes are not a good sign. That’s a hallmark of weak markets. As a practical matter, strong opens will lure investors in as stocks flash buy signals, only to be down within a few minutes.
Growth stocks have held up better than most in the recent pullback, though it’s hit or miss. Speculative growth, as shown by ARKK and ARKG, is not acting well overall. Meanwhile, steelmakers and homebuilders have struggled. Energy stocks, which have been coming back, struggled on Tuesday. Financials and retailers have been mixed.
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What To Do Now
With the market rally pulling back to test key support levels, don’t cheat and try to bet on a rebound. It’s not a great time to be adding exposure. Instead, investors likely should be trimming some holdings, even if it’s simply from cutting losers and trimming some winners.
Instead of trying to step on the gas in a choppy or weak market, keep reworking those watchlists. Spot potential setups so you can act quickly as the market shapes up again.
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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