Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Applied Materials (AMAT) was reporting after market close, while BBBY stocks tumbled overnight. The stock market rally is in a pullback near key resistance but is really not pulling back as major indices climb higher on Thursday.
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That’s a sign of strength, but a modest retreat would be constructive. Investors should be cautious about adding significant exposure in the near future.
BJ’s Wholesale (BJ) and Canadian Solar (CSIQ) broke out of the base on strong gains as both come from areas of strong market strength. Exxon Mobile (XOM) signaled a buy signal as oil & gas stocks continue to lead amid rising energy prices. Apex Pharma (VRTX) is pulling back but may create a fresh buying opportunity.
In the meantime, bed bath beyond (BBBY) suffered a “return to meme” and crashed Thursday afterward GameStop (GME) Chairman Ryan Cohen, a major BBBY stock investor, announced plans to withdraw. BBBY stock continued to plummet overnight as Cohen made his quick exit.
AMAT receipts
Applied Materials’ earnings came in better than expected in the fiscal third quarter, with the chip equipment giant also trending higher. AMAT shares edged near a two-month high in overnight trading. Shares of the chip equipment giant rose 2.1% to 108.27 on Wednesday. But Applied Materials stock is still well below its 200-day moving average.
The AMAT earnings could be good news for the rival KLA Corp. (KLAC). KLAC stock was quiet in extended trading after rising 1.85% to 382.02 on Thursday. It is working on a 399.06 cup with handle buy point and is about to break a trendline in that handle which would offer an early entry.
Vertex shares are on the IBD Leaderboard and IBD Big Cap 20. XOM shares are on SwingTrader.
Dow Jones futures today
Dow Jones futures were flat against fair value. S&P 500 futures fell 0.1%. Nasdaq 100 futures fell, even with a slight boost from AMAT stock.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
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stock market rally
The stock market rally traded in a narrow range for most of Thursday’s session.
The Dow Jones Industrial Average rose less than 0.1% in trading on Thursday. The S&P 500 index and the Nasdaq Composite rose 0.2%. Small-cap Russell 2000 gained 0.7%.
US crude prices rose 2.7% to $90.50 a barrel. Gasoline futures rose 3.1%. Natural gas futures are down slightly, down 0.6%, but are right at 14-year highs.
The 10-year government bond yield fell 1 basis point to 2.88%.
ETFs
Among the best ETFs, Innovator IBD 50 ETF (FFTY) is up 1.4%, while Innovator IBD Breakout Opportunities ETF (BOUT) is up 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) lost a fraction. The VanEck Vectors Semiconductor ETF (SMH) was up 1.4%, with AMAT stock a notable component.
The SPDR S&P Metals & Mining ETF (XME) was up 2.4% and the Global X US Infrastructure Development ETF (PAVE) was up 0.7%. The US Global Jets ETF (JETS) fell 0.3%. SPDR S&P Homebuilders ETF (XHB) edged up 0.4%. The Energy Select SPDR ETF (XLE) is up 2.7%, with XOM shares being a massive holding. The Financial Select SPDR ETF (XLF) was up 0.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.4%.
ARK Innovation ETF (ARKK) fell 1.1% and ARK Genomics ETF (ARKG) fell 1.2%, reflecting more of speculative story stocks.
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Stocks Flashing buy signals
BJ’s stock rose 7.2% to 74.09, overcoming a buy point of 71.10, although falling from its high of 77.47 shortly after the open. Investors could still buy the gap up or use an intraday chart to see if BJ’s stock can scale above the 75.50 area for most of Thursday’s trading. BJ’s wholesale business early Thursday reported its third straight quarter of accelerating earnings growth and a second quarter of faster sales growth. The Lagerhaus membership chain also led upwards.
Greater Rival Costco Wholesale (COST) was up 0.8% to 560.96, comfortably in a buy zone from a cup and handle basis, according to MarketSmith analysis.
CSIQ stock rose 15% to 45.19 and held most of its intraday gains. Investors could buy Canadian Solar now, or wait and see if it consolidates or pulls back slightly.
Canadian Solar reported EPS up 494% on revenue up 62%. Energy Solar Group is #1 of 197 based in the US Enphase Energy (ENPH) leading.
Exxon stock rose 2.4% to 94.38, recovering from its 50-day moving average and breaking a downtrend since it began its consolidation in early June. The official buy point is 105.67. Exxon Mobil is well positioned as a diversified energy giant with large exposures to crude oil, natural gas and refining.
Vertex shares fell 1.65% to 294.29, down for the third consecutive day on low, declining volume. But stocks found support at the 21-day moving average. Investors could buy VRTX stock now or wait for some strength.
BBBY stock plummets after pump, dump
BBBY shares fell 19.6% to 18.55 on Thursday after rising sharply over the past few weeks. Late Wednesday, Ryan Cohen, chairman of original meme stock GameStop, announced plans to sell his holdings in Bed Bath & Beyond. BBBY plunged 44% late Thursday as Cohen announced he was done selling his stake.
Additionally, Bed Bath & Beyond, which in the real world is a loss-making homewares company with falling sales, has reportedly hired a bankruptcy law firm to help it deal with an unmanageable debt load, Bloomberg reported Thursday night, citing a source.
BBBY is up 132% for the week from Wednesday’s high and is now down significantly for the week, including the after-hours plunge.
As recently as Monday night, Cohen announced large out-of-the-money BBBY stock options that helped generate strong gains Tuesday through Wednesday.
But while GameStop’s Cohen offered a pump-and-dump catalyst, Bed Bath & Beyond’s stock follows a familiar “return-to-the-meme” script. Meme stocks often have a massive gain that gets widespread media attention, followed by another big intraday gain that often tails off or closes lower, followed by rapid declines.
While BBBY stock was up sharply in early August, Tuesday’s 79% intraday gain — 29% at the close — caught attention in record volume. On Wednesday, shares rose 45% for the day to a five-month high but faded near session lows for a 12% surge.
As for other meme stocks, GME stock fell 6.4% after falling 4% on Wednesday. AMC entertainment (AMC) fell 9.7% below its 200-day moving average. AMC shares are down 14% on Wednesday.
GME shares and AMC fell overnight.
Analysis of the market rally
What if the market rally declared a pullback, but the pullback didn’t materialize? Major indexes have retreated slightly since the S&P 500 nearly touched its 200-day moving average on Tuesday, but none of the major indexes have even touched the 10-day moving average.
The Dow Jones continues to hold the 200-day moving average, with the S&P 500 index and Russell 2000 just below this key level.
The resilience of the market rally after a strong stretch is impressive. But more of a pullback would offer leading stocks a chance to form handles or pull back to the 21-day moving average. The major indices themselves are only about 3% above the 21-day moving average.
Individual stocks and sectors will vary. Energy stocks are rebounding as prices rise, with Exxon Mobil and several others signaling buy signals over the past few days. Solar names are looking strong while heavy construction, steel and some transportation are pitching.
Several chip names are on the rise, along with some retailers like BJ’s Wholesale.
Biotechs like VRTX stock are pulling back, which could present buying opportunities of their own.
The market rally could pause quietly for several days and then surge higher, but it could also go the other way. The Nasdaq was trading firm late last year, again in late March/early April and late May/early June. In any case, the tame action ended in sharp sell-offs.
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What now
So investors shouldn’t get too aggressive now. There are some buying opportunities and investors should consider them, but do not add exposure materially as the market direction is unclear near-term.
You can still consider taking some partial profits along the way, as stocks still tend to give up much of the recent gains amid sector rotation. You can also use this to manage your overall portfolio exposure.
The market decline and various sector moves are creating new setups, so don’t let up on your watch lists.
Read The Big Picture every day to keep up to date 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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