Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Trade Desk (TTD) plunged overnight on guidance.
The stock market rally finally saw a pullback, with the S&P 500 and Nasdaq composite snapping long win streaks. Treasury yields spiked on a poor 30-year Treasury bond auction. Fed chief Jerome Powell followed up, saying the central bank is “not confident” that it’s done enough to rein in inflation.
Meanwhile, China’s Li Auto (LI) reported booming earnings, while EV and battery giant BYD (BYDDF) launched its first off-road vehicle via its new F-brand. Both LI stock and BYD fell Thursday, but close to early entries.
Overall, a market pullback is probably constructive, letting the major indexes and leading stocks catch their breath. Palantir Technologies (PLTR) and MercadoLibre (MELI) are close to forging handles after recent earnings gap-ups.
Trade Desk earnings and revenue modestly topped Q3 views after the close. But the digital ad platform guided low on Q4 revenue. TTD stock dived more than 25% in overnight action. Shares fell 2.6% in Thursday’s session, reversing below the 50-day line.
Meanwhile, ANET stock fell solidly in extended trade, though off initial after-hours lows. Late Thursday, Arista Networks (ANET) guided 2024 revenue growth fractionally below consensus at its Cloud and AI Innovators event.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures tilted higher and Nasdaq 100 futures declined 0.1%.
The 10-year Treasury yield edged down to 4.61%.
Stock Market Rally
The stock market rally retreated, with the S&P 500 snapping an eight-session win streak and the Nasdaq down for the first time in 10 sessions.
The Dow Jones Industrial Average fell 0.65% in Thursday’s stock market trading. The S&P 500 index sank 0.8%. The Nasdaq composite declined 0.9%.
The indexes lost ground in the afternoon amid weak investor demand in a 30-year Treasury bond auction, sending yields soaring. Fed chief Powell said policymakers are committed to bringing inflation back down to 2%, but are “not confident” that they’ve done enough to achieve that. But Powell also gave no indication that the Fed is planning to raise rates again, once again saying that the central bank will act “carefully.”
Markets see little chance of a rate hike at the next few meetings.
If nothing else, the Treasury bond auction and Fed chief Powell may have given investors an excuse for some profit taking.
The Nasdaq and S&P 500 are just below their October highs, with the Dow Jones right around those levels. It’s a natural place to hit resistance.
Ideally, the major indexes will hold the 50-day line, then move higher after a few days.
Meanwhile, breadth was weak, with the decliners trumping winners by nearly 3-to-1 on the NYSE and Nasdaq.
The small-cap Russell 2000 tumbled 1.5%.
The Invesco S&P 500 Equal Weight ETF (RSP) sank 0.85%.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 0.9%, again hitting resistance at the 50-day line.
While market breadth remains a challenge, market leadership remains solid. Technology, especially software, is doing well. But so are a number of aerospace names, some financials and some discount retailers.
DUOL stock, Affirm, TransDigm (TDG) and software maker Vertex (VERX) were the latest with earnings gap-ups. DUOL stock and Vertex look extended after Thursday. AFRM stock closed between entries and TransDigm closed in buy range, though investors might want to wait a few days to see if shares hold Thursday’s gains.
The 10-year Treasury yield jumped 12 basis points to 4.63%, back above its 50-day line. Tumbling Treasury yields have been a key driver of the revived market rally.
Crude oil futures rose 0.5% to $75.74 a barrel.
SPDR S&P Metals & Mining ETF (XME) dropped 0.8%. SPDR S&P Homebuilders ETF (XHB) stepped down 1.3%. The Energy Select SPDR ETF (XLE) dipped 0.3% and the Health Care Select Sector SPDR Fund (XLV) tumbled 2.1%.
Nvidia stock hit 482.30 just before midday, clearing a 476.09 double-bottom buy point. But shares faded to close up just 0.8% to 469.59. A day earlier, NVDA stock topped a downward-sloping trendline.
Thursday marked the stock’s first up day in above-average volume in more than two months. But the weak close offsets some of that.
The relative strength line hit a new high. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index. The RS line hitting a new high as or before a stock breaks out is a bullish sign, which is why MarketSmith labels such stock charts with a blue dot at the end of the RS line.
Nvidia will release new chips for the China market, according to various sources, after the U.S. government curbed exports of its high-end AI chips.
MELI stock declined 1.9% to 1,341.38, providing a much-needed shakeout. After Friday, MercadoLibre stock should have a handle on its cup base, giving it a 1,398.15 buy point. Last week, MELI stock surged 15.6% after the Latin American e-commerce and payments giant reported strong earnings.
PLTR stock fell 1.1% to 18.29 on Thursday. Shares are only two days into a possible handle on a daily chart. But Palantir stock is on track for a weekly handle with a 19.17 buy point. In the prior week, the data analytics software maker vaulted 25%, clearing some key levels, on earnings.
Tesla stock tumbled 5.5% to 209.98, falling from the 200-day line. Arguably, that move offered a shorting opportunity Thursday morning, but perhaps not anymore.
HSBC initiated TSLA stock at “reduce,” with a 146 price target.
Tesla raised China prices of the Long Range variants of the Model 3 and Y, as expected. But the price increases were very small. Tesla also left the door open to remove those token increases, perhaps aimed at pulling demand forward.
President Joe Biden on Thursday backed United Auto Workers efforts to unionize Tesla and other nonunion U.S. plants such as Toyota (TM).
China EV Stocks
Li Auto reported better-than-expected third-quarter earnings, with EPS rising substantially in each quarter. Sales skyrocketed 262%, the fourth straight quarter of accelerating growth. The hybrid SUV maker sees record deliveries again in the third quarter but implied some pricing pressure.
LI stock retreated 4.3% to 37.65 on Thursday. Shares gapped up 8.4% on Monday, rebounding above the 50-day line. Investors could use that intraday high of 40.12 as an early entry. The official Li Auto stock buy point is 47.33.
BYD’s new Fang Cheng Bao brand formally launched its first vehicle, the off-road Bao 5 hybrid. It starts at RMB 289,800 ($39,780), lower than expected. The Bao 5 will begin deliveries this month, along with the BYD Song L crossover. BYD is pushing hard to hit 3 million deliveries in 2023, and will likely grab the all-electric “BEV” crown from Tesla in Q4.
BYD stock slipped 1% to 31.09 on Thursday, pennies below the 50-day line. Shares are far from a 36.27 consolidation buy point, but investors could use the Oct. 18 high of 32.76 as an early entry. BYD stock has been trading very tightly on a weekly chart.
What To Do Now
Thursday’s retreat is a good reason why investors should be adding exposure gradually, to avoid getting caught out.
There are still good reasons to be bullish. A modest pullback would let the major indexes catch their breath and let more leading stocks like Palantir forge handles.
But don’t bet on that scenario. Wait for the market action to play out.
Work on your watchlists. In the past few days, some stocks have become extended while others are now actionable or moving into position. You want to keep a close eye on a select group of names, while keeping track of a wide array of stocks showing relative strength.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.