Dow Jones futures fell slightly in extended trading, along with S&P 500 and Nasdaq futures. Lululemon, Costco and Broadcom reported earnings after the close.
The stock market rally rebounded modestly on Thursday, but only recovered a small portion of the losses suffered over the past few days. Investors should remain cautious in a choppy market. The S&P 500 remains below its 200-day line, with most indices also touching resistance at their 21-day moving averages.
Semiconductor stocks performed well, with the chipmaker Nvidia (NVDA) among the top performers in the S&P 500 on Thursday. But chip makers are generally in better shape, with KLA Corp. (KLAC), Axcelis Technologies (AATC) and Ultra clean farms (UCTT) flashing buy signals on Thursday. ASML (ASML) and Applied materials (AMAT) are among those close to the points of purchase.
Wholesale Costco (COST), Lululemon Athletica (LULU) and Broadcom (AVGO) reported Thursday evening.
COST shares were little changed overnight after Costco’s earnings and sales narrowly missed the views. Costco stock lost a fraction in Thursday’s regular session, but is down almost 11% so far this month.
LULU stock fell in extended trade after the yoga wear retailer edged lower for the critical holiday quarter. Lululemon’s revenue slightly topped third-quarter views. Lululemon stock edged up 0.6% to 374.11 on Thursday, closing in on a buy point of 370.56 cup with handle. But he is about to break out of this buy zone.
AVGO stock rose slightly after hours as Broadcom’s earnings and forecast beat views, with the chip and software giant also increasing its dividend. Broadcom stock closed 2.4% higher at 531.08, just below the 200-day line. Last week’s high at 552.42 could offer some kind of entry.
LULU stock is on the IBD ranking as an earnings options game. KLAC stock is on IBD Long-Term Leaders.
Dow Jones Futures Today
Dow Jones futures fell 0.1% from fair value. S&P 500 and Nasdaq 100 futures fell 0.1%.
Crude oil futures rose slightly.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
The stock market rally had a strong session as the indices swerved wide after the first hour of trading.
The Dow Jones Industrial Average climbed 0.55% in Thursday’s stock trading. The S&P 500 index rose 0.75%. The Nasdaq composite rebounded 1.1%. The small cap Russell 2000 rose 0.7%.
US crude oil prices fell 0.8% to $71.46 a barrel, with some strong intraday swings. Crude futures are now at levels that the Biden administration said would trigger the filling of the strategic oil reserve, which has been drained to long-term lows this year to reduce energy costs.
The 10-year Treasury yield jumped 8 basis points to 3.49%, but it was an inside day after falling to 3.41% on Wednesday.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) gained 1.8%. ETF VanEck Vectors Semiconductor (SMH) jumped 2.55%. Nvidia, ASML, KLA and AMAT shares are all SMH holdings. Reflecting more speculative stocks, ARK Innovation ETF (ARKK) gained 2.4% and ARK Genomics ETF (ARKG) 2.2%.
The SPDR S&P Metals & Mining ETF (XME) edged up 0.3% and the Global X US Infrastructure Development ETF (PAVE) edged up 0.8%. The US Global Jets ETF (JETS) fell 0.3%. The SPDR S&P Homebuilders ETF (XHB) rose 0.6%. ETF Energy Select SPDR (XLE) and ETF Financial Select SPDR (XLF) rose 0.1%. The SPDR health care sector fund (XLV) rose 0.9%.
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Smart actions near buy points
Several chipmakers are in or near the buying areas. In general, semiconductor equipment makers have gloomy forecasts for the year ahead, but chip equipment inventories are often at rock bottom long before business picks up.
KLAC stock rose 2% to 395.92, clearing some buy points between 392.60 and 396.02. Trading was very light, but there were a number of strong gains in skyrocketing volume as the KLA rebounded from bear market lows in October and November. The relative strength line is at an all-time high, even with stocks well below their January peak. KLA stock is a long term leader, but the time to buy a stock as LTL is when it is closer to the 200 or 50 day lines.
ACLS stock jumped 4.9% to 81.93, returning above a buy point of 80.34 cup with handle, according to MarketSmith analysis. Axcelis is well extended against the 50-day line, but the 21-day line has run higher. The RS line for ACLS stocks is at its highest level in 15 years.
UCTT stock climbed 5.6% to 36.59, surpassing a buy point of 36.10 cup with handle and reaching its best levels since April. The base formed all the way down, with no prior uptrend. But the handle largely formed above the 200-day line. The RS line for UCTT stocks is at an 8-month high.
ASML stock edged up 0.9% to 606.89. Stocks jumped from their low in the bear market from October 13 to November 15. Since then, the Dutch high-end semiconductor equipment giant has consolidated comfortably above the 200-day line, at the best levels since April. The 21-day line is about to catch up. A break above recent highs could offer early entry. Ideally, ASML would bounce off the 21 day line or forge a suitable base.
AMAT shares gained 2.4% to 108.61 on Thursday. The shares are slightly above the 200-day line after its own Oct. 13-Nov. 15 races. Applied Materials has a tight three-week pattern, offering a buy point of 112.22. Investors could use a short trendline, perhaps with Thursday’s high at 109.43 as a trigger, as a slightly earlier entry.
Meanwhile, chip giant Nvidia rebounded 6.5% to 171.69, bouncing off its 21-day line. NVDA’s stock is just below its 200-day line now. An aggressive trader could use a decisive breakout from the 200-day line as a buy signal. But it might be better to wait for Nvidia stock to clear the 200 days and form some sort of consolidation, a la ASML or AMAT, to spy on a safer entry.
Market rally analysis
The stock market rally ended a recent losing streak with modest to solid gains. But this did not fundamentally change the technical picture. The major indices are moving sideways, finding support at key levels but also hitting resistance.
The S&P 500 index just managed to close above its 21-day moving average. The benchmark must return above its 200-day moving average and its December 1 high.
The Nasdaq composite held support at its 50-day moving average, regaining the 11,000 level but closing just short of its 21-day mark. The Russell 2000, which fell below its 200-day and 21-day line earlier this week, has retreated from its 21-day intraday.
The Dow Jones, which closed just above its 21-day average on Wednesday, rebounded slightly on Thursday.
Markets may not make a decisive move with key news coming.
The November producer price index is due Friday morning. Wholesale inflation should show a steady and continued deceleration. But the real concern is in the prices of the services. November’s CPI report is scheduled for Dec. 13, with the Fed’s year-end meeting ending the next day.
These events could be the catalyst for large market moves up or down. Sure, over the past month the indices have had big moves around the October CPI, Fed Chief Powell’s speech and more, but aside the choppy action has continued.
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What to do now
Some stocks issued buy signals on Wednesday, including KLAC, ACLS, United Rentals (URI) and Dexcom (DXCM). Investors could have snacked on some of them – or not.
Overall exposure should remain low. The current market trend is sideways and choppy. It’s just a tough environment to make progress in stock trading. If you make new purchases and get a decent gain, consider taking partial profits early. Too many promising stocks have gone back and forth 5%, 10% gains in the past few weeks.
A number of actions from various sectors are taking place. So keep your watchlists up to date and stay engaged.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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