Dow Jones Futures Fall, Yields Climb After Latest Market Shift; AI Chip Leader Extends Slide

Dow Jones futures tilted lower Monday morning, along with S&P 500 futures and Nasdaq futures. Treasury yields moved toward long-term highs with the Federal Reserve meeting looming large. Nvidia stock fell, extending recent losses.

The stock market rally was little changed last week. But after reclaiming their 50-day lines on Thursday, the major indexes fell back on Friday. While they could rebound again, the S&P 500 and Nasdaq also aren’t far from triggering a highly bearish signal.

Software, which had looked so strong, tumbled this past week amid negative reactions to Oracle (ORCL) and Adobe (ADBE) earnings and guidance.

AI chipmaker Nvidia (NVDA), the clear leader of the 2023 market rally, fell below its 50-day line. Taiwan Semiconductor (TSM) demand concerns hit many chip stocks on Friday, especially chip equipment. NVDA stock falling nearly 2% Monday morning is not a great sign.

Google parent Alphabet (GOOGL) and Tesla (TSLA) are holding strong in buy areas. Meta Platforms (META), Microsoft (MSFT) and Amazon.com (AMZN) retreated from buy areas, though the charts don’t look especially damaged.

The market rally is under pressure with choppy action. It’s a dangerous time to be making new buys. But in addition to Tesla and Google, five stocks to watch are ServiceNow (NOW), Li Auto (LI), Booking Holdings (BKNG), XP (XP) and Caterpillar (CAT).

NVDA stock, Tesla, Meta, Booking Holdings are on IBD Leaderboard, with NOW stock on the Leaderboard watchlist. LI stock and XP are on SwingTrader. MSFT stock is on IBD Long-Term Leaders. Meta stock, Nvidia, XP, Booking, Tesla and Caterpillar are on the IBD 50. Tesla stock, ServiceNow, Nvidia, Google and Caterpillar are on the IBD Big Cap 20.

The video embedded in the article discussed the market action in depth and analyzed Samsara (IOT), Caterpillar and XP.

In other news, the United Auto Workers strike continues vs. General Motors (GM), Ford Motor (F) and Stellantis (STLA) enters its fourth day. Some progress has been made, but the two sides remain far apart on wages and benefits.

Fed Meeting

Policymakers meet on Sept. 19-20, with markets overwhelmingly expecting no action. But Fed policymakers will give new rate-hike projections while staff will issue economic forecasts. Those rate-hike projections and Fed chief Jerome Powell’s press conference will likely swing stocks and bonds.

The odds of a Nov. 1 rate hike have fallen to about one-third, as recent data have signaled underlying cooling for inflation and economic growth.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures slipped 0.2% and Nasdaq 100 futures lost 0.3%, with NVDA stock weighing on techs.

Crude oil futures climbed slightly, topping $91 a barrel.

The 10-year Treasury yield rose slightly to 4.34%, on the cusp of the highest levels in more than 15 years.

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 leading stocks and the market on IBD Live

Stock Market Rally

The stock market rally had some notable swings during the week, but the major indexes ended narrowly mixed.

The Dow Jones Industrial Average edged up 0.1% in last week’s stock market trading. The S&P 500 index dipped 0.2%. The Nasdaq composite lost 0.4%. All fell back below their 50-day lines on Friday.

The small-cap Russell 2000 edged down 0.2%, just above its 200-day line.

Adobe and Oracle earnings and guidance didn’t live up to lofty expectations. ADBE stock tumbled 5.6% for the week, right at its 50-day line. as ORCL stock plunged 9.8%, gapping below its 50-day.

The reports were bad news for many software plays. IOT stock round-tripped its powerful move after Samsara’s earnings, though it did bounce off the 50-day. MongoDB (MDB) and Datadog (DDOG) were among several stocks that reclaimed their 50-day lines on Monday ahead of Oracle results, then tumbled for solid weekly losses.

Cooling hype about revenue from AI services and tools also may have weighed on AI chip giant Nvidia, which fell 3.7% on Friday and for the week to a one-month low.

Meanwhile, several airlines warned on fuel costs while Nucor (NUE) guided low on earnings. Taiwan Semi reportedly has effectively warned.

A UAW strike vs. Ford (F), General Motors (GM) and Chrysler parent Stellantis (STLA) began Friday. That didn’t seem to bother investors, though a lengthy outage could have a big industry and economic impact.

The 10-year Treasury yield rose six basis points to 4.32%. That’s not far from the 15-year high of 4.36% set last month.

U.S. crude oil futures jumped 3.7% to $90.77 a barrel last week. Copper prices bounced 2.3%.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.5% last week. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 3.3%, with Adobe stock, Oracle and Microsoft huge holdings. The VanEck Vectors Semiconductor ETF (SMH) gave up 2.4%. Nvidia stock is the top SMH holding, with TSM a major component.

SPDR S&P Metals & Mining ETF (XME) popped 3.7% last week. U.S. Global Jets ETF (JETS) fell 1.75%, extending a long descent. SPDR S&P Homebuilders ETF (XHB) retreated 2.9%. The Energy Select SPDR ETF (XLE) lost a fraction and the Health Care Select Sector SPDR Fund (XLV) edged up 0.1%. The Industrial Select Sector SPDR Fund (XLI) declined 0.6% with CAT stock a big holding.

The Financial Select SPDR ETF (XLF) climbed 1.55% and the SPDR S&P Regional Banking ETF (KRE) advanced 0.8%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 1.4% last week and ARK Genomics ETF (ARKG) dropped 1.9%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs.

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Tesla, Google Stock In Buy Areas

TSLA stock surged 10.1% on Monday, blasting past a 261.18 early entry as Morgan Stanley’s Adam Jonas said Tesla’s Dojo supercomputing efforts could boost the stock’s valuation by $500 billion. Shares held that gain and a bit more, finishing the week up 10.4% to 274.39.

While still in range of that early entry, investors might want to wait for a handle. Tesla stock does have a 299.29 official buy point from a cup base.

Tesla is in early talks with Saudi Arabia about building an EV plant in the country, The Wall Street Journal reported early Monday. The EV giant has been tied to possible factories in many countries around the world over the years.

Google stock edged up 0.75% to 137.40, its fourth straight weekly gain, hitting a 17-month high on Thursday. Shares are still in range of a 133.74 shelf entry just above a cup-with-handle base, but investors might want to wait for a better buying opportunity. The relative strength line for GOOGL stock is at a 52-week high.

Meanwhile, MSFT stock and Meta fell back below their 50-day lines after flashing early entries Thursday. AMZN stock is back below a flat-base buy point.

Stocks To Watch

ServiceNow stock fell 3.4% for the week to 579.58. The software giant now has a cup-with-handle base on a weekly chart, giving it a 607.90 buy point. The handle will be proper on a daily chart after Monday.

LI stock has a new double-bottom base with a 43.37 buy point. Shares of the Chinese EV startup rose 5.9% last week to 40.65, rebounding back above the 50-day line. Investors could use Friday’s high of 41.44 as an early entry from a downward-sloping trendline while still being close to the 50-day.

BKNG stock edged up 0.5% to 3,160.15, moving up the right side of a flat base with a 3,251.71 buy point, riding the 21-day line. A move above Thursday’s high of 3,226.57 would offer an early entry.

XP stock leapt 6% to 26.36 last week, with Friday’s 2.7% move from near the 21-day and 50-day lines offering an early entry. Investors could view the Brazilian brokerage as being in a consolidation going back to late July, with a buy point of 27.67 or 27.71.

CAT stock fell 1.1% to 279.15, but found support at the 10-week line. Caterpillar has a 293.88 buy point from a flat base just above a cup base, according to MarketSmith analysis. Investors could the Sept. 5 high of 289.41 as an early entry, with a downward-sloping trendline offering a more-aggressive buy signal.

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Market Rally Analysis

It was a disappointing week for the struggling market rally, with Friday’s losses curbing hopes for a resumed steady uptrend.

Arguably the market is still trading within a September range within a somewhat larger range from the past two months, with the 50-day line cutting right through all of that. That makes it easy for the market rally to quickly shift from bullish and bearish signals, without making a decisive move.

The underlying trend is weaker than the major indexes. The Nasdaq advance/decline line is at long-term lows, while overall new lows are trending above new highs.

The Russell 2000 is fighting to hold the 200-day line, while once-leading sectors such as software and industrial come under growing pressure.

Chips had already been struggling, but SMH is now starting to lose sight of its 50-day as Nvidia undercuts that key level. Taiwan Semi reportedly delaying chip-equipment deliveries due to weak end demand added to semiconductors’ pain.

Housing stocks continue to struggle over the past several weeks, with Lennar (LEN) not helping Friday despite beating views.

While it wouldn’t take much for the major indexes to reclaim the 50-day line once again, the S&P 500 and Nasdaq are just above the lows of their Aug. 29 follow-through day. Closing below the FTD low would be a highly bearish sign that the market rally would ultimately fail.

While the indexes rallied Thursday despite higher Treasury yields, rising market rates have clearly been a drag on stocks in recent weeks. If the 10-year Treasury yield punches to new highs, stocks will likely come under more pressure. Declining yields could provide a spark.

So the Fed-rate hike outlook Wednesday could be crucial for the ailing market rally.

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What To Do Now

There is nothing more dangerous than a choppy market. On Thursday, the market looked to be reviving, with some stocks flashing buy signals. Investors certainly could have made some incremental buys. But on Friday, many new buys came under pressure. If you hold on, you could face sizable losses. If you cut ties, the market may just swing back.

That’s been the trend in September and broadly over the past two months.

Investors should have exposure from long-term holdings, or recent buys that have worked out. But don’t ramp up exposure at the first positive sign to limit the risk of being caught in a market riptide.

Rather than try to force the issue, investors should focus on being ready for the next steady uptrend. Work on those watchlists. Focus on stocks that are showing strong relative strength.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on X/Twitter at @IBD_ECarson and on Threads at @edcarson1971 for stock market updates and more.