Dow Jones Futures: Market Rally Fizzles; GME Stock, Trump Stock DWAC Spike On News

Dow Jones futures rose slightly  overnight, along with S&P 500 futures and Nasdaq futures, with the December jobs report due Friday morning. The stock market rally on Thursday tried to rebound, but feeble gains turned to slim losses on the major indexes, as Apple stock and Tesla retreated.

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The 10-year Treasury yield continued to climb, nearing pandemic highs while crude oil prices rose solidly. Banks and energy stocks continued to advance as well.

Outside of those two areas, Arista Networks (ANET), Zim Integrated Shipping (ZIM), Dow Jones component Home Depot (HD), Taiwan Semiconductor (TSM) and Hilton Hotels (HLT) are five stocks worth watching. All are holding up reasonably well. Some are near possible entries while others are potentially actionable now, though investors should be cautious about any buys with the stock market rally under pressure.

Meanwhile, Apple (AAPL) retreated again, closing below its 21-day moving average for the first time in three months. Tesla stock fell below its 50-day moving average.

Finally, meme stocks DWAC and GameStop (GME) rallied on news. Trump stock SPAC partner Digital World Acquisition Corp. (DWAC) surged in Thursday’s session as the former president gets ready to launch his social media site next month.

GME stock skyrocketed overnight as the video game retailer launches a unit to enter the NFT and cryptocurrency markets.

Tesla (TSLA) and ANET stock are on IBD Leaderboard. ZIM stock, Arista Networks and Tesla are on the IBD 50.

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Jobs Report

The Labor Department will release the December jobs report at 8:30 a.m. ET. Economists expect to see nonfarm payrolls rising by 400,000. In November, payrolls rose by just 210,000, but the separate household survey showed a big employment jump, driving the jobless rate down to 4.2%. Wall Street forecasts an unemployment dip to 4.1% in December.

Economists also expect the labor force participation rate to nudge up to 61.9%, as workers slowly reenter the workforce. That participation rate may be the key number in the December jobs report, as workers balance omicron concerns vs. dwindling pandemic savings. How quickly and how many “missing workers” return to the labor force is a key factor for wage hikes and longer-term inflation pressure — and how fast the Federal Reserve will tighten policy as 2022 goes on.

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Dow Jones Futures Today

Dow Jones futures advanced 0.1% vs. fair value. S&P 500 futures also rose 0.1%. Nasdaq 100 futures climbed 0.2%.

The December jobs report is sure to move Treasury yields and Dow Jones futures before the open and beyond. The initial market moves may quickly reverse.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally saw modest intraday gains turn into small losses for the major indexes, a weak follow-up to Wednesday’s sharp sell-off.

The Dow Jones Industrial Average fell 0.5% in Thursday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite slid 0.1%. The small-cap Russell 2000 advanced 0.6%.

Humana (HUM) crashed 19% on a profit warning, also knocking other health insurers, with Dow Jones component UnitedHealth (UNH) down 4.1% to its 50-day line.

The 10-year Treasury yield rose about 3 basis points to 1.73%, just below the March 2021 peak of 1.765%, which is the highest since January 2020. It’s up 22 basis points this week. The two-year Treasury yield climbed 5 basis points on Thursday to 0.88%. St. Louis Fed President James Bullard says the first Fed rate hike could come in March, right after the Fed bond taper brings asset purchases to zero. On Wednesday, Fed minutes from the December policy meeting signaled that the central bank could start to reduce its massive balance sheet soon after the first rate hike.

U.S. crude oil futures rose 2.1% to $79.46 a barrel, the highest close since Nov. 16.

Apple stock sank 1.7% to 172, below its 21-day line. The Dow tech titan was only down 3.1% for the week, and still close to all-time highs. But the AAPL stock retreat shows that even the biggest, strongest techs are under pressure.

Tesla stock retreated 2.15% to 1,064.70, off intraday lows but closing below its 50-day line. After spiking 13.5% on Monday on blowout Q4 deliveries, shares are up less than 1% from there. Monday’s move vaulted TSLA stock past a 1,119.10 handle buy point. At this point, investors should probably look to just above 1,200 for a trigger now.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) tilted 0.2% higher. The iShares Expanded Tech-Software Sector ETF (IGV) eked out a 0.1% gain. The VanEck Vectors Semiconductor ETF (SMH) popped 1%, with TSM stock a major holding.

SPDR S&P Metals & Mining ETF (XME) sank 1.5% and Global X U.S. Infrastructure Development ETF (PAVE) was just above break-even. U.S. Global Jets ETF (JETS) maintained altitude. SPDR S&P Homebuilders ETF (XHB) dipped 0.25%, with HD stock a notable holding. The Energy Select SPDR ETF (XLE) climbed 2.2% and the Financial Select SPDR ETF (XLF) 1.5%. The Health Care Select Sector SPDR Fund (XLV) slumped 1.2%, with UNH stock the No. 1 component.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slipped 0.6% and ARK Genomics ETF (ARKG) 1.7%, both hitting 16-month lows intraday. Both ARK funds tumbled 7.1% on Wednesday. Tesla stock remains the No. 1 holding across ARK Invest’s ETFs, but Cathie Wood has slashed her holdings in the EV giant in recent months.

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Stocks To Watch

Arista Networks stock edged down 0.4% to 132.67, but is finding support at its 10-week line. ANET stock has round-tripped a double-digit gain from a 134.24 flat-base buy point, but its low-volume retreat this week looks relatively tame compared to most other growth names. A strong rebound from the 10-week line could offer a new entry, hopefully with the broader market shoring up.

Arista also benefits from being in the strong networking group. Cisco Systems (CSCO), Extreme Networks (EXTR), F5 Networks (FFIV) are other quality names in the group.

Zim Integrated Shipping stock rose 2% to 55.73, finding support near its 21-day line. ZIM stock appears to be forming a high handle on MarketSmith charts, which are adjusted for the company’s large dividends. For unadjusted charts, ZIM stock is forming a regular handle in a consolidation going back to Sept. 16. Either way, 59.79 is the buy point.

Star Bulk Carriers (SBLK) and Matson (MATX) are related shipping stocks that are setting up.

Home Depot stock dipped 0.3% to 405.88, finding support at its 21-day moving average and just above its 10-week line. The relative strength line isn’t far from highs after a strong advance. HD stock is building a consolidation with a likely 420.71 buy point after next week, though investors could find slightly earlier entries. Archrival Lowe’s (LOW) also is consolidating bullishly.

Taiwan Semiconductor stock rose 1.3% to 128.81, holding above Monday’s trendline break and close to a 128.19 entry. Investors might want to wait for TSM stock to get above Tuesday’s high of 135.50, ideally after forming a handle. Taiwan Semi stock is in a consolidation going back to mid-February 2021.

Several other chip stocks are holding up well, including STMicroelectronics (STM) and Applied Materials (AMAT), but many others are struggling.

Hilton stock edged up 0.2% to 152.06, still in a buy zone. HLT stock cleared a 148.85 cup-with-handle buy point on Dec. 22, after an early entry in the prior session. Expedia (EXPE) and several hotel stocks have fared well in the past few weeks, as investors see omicron having less of a near- or long-term impact on travel than prior Covid variants.

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Trump Stock DWAC Spikes On Social Launch

Former President Trump’s Trump Media will launch its TRUTH social media app on Feb. 21, according to an Apple App Store listing. The announcement comes one year after many Trump supporters rioted in the U.S. Capitol building. Twitter (TWTR) and Meta Platforms (FB) unit Facebook (FB) banned Trump in the wake of Jan. 6.

A Trump social media site presumably could gain millions of followers almost instantly. Forging a profitable enterprise could be a challenge.

Trump stock SPAC partner DWAC stock shot up nearly 20% to 60.27, after sinking to 45.20 intraday. DWAC stock surged above several weeks of tight trading and above the 50-day line. DWAC stock has another short-term hurdle at the Dec. 8 peak of 66.31. But it’s a long way from the Oct. 22 intraday high of 175, soon after Trump Media agreed to a SPAC deal with DWAC stock.

GME Stock Soars Overnight

GameStop is launching a division to create a marketplace for nonfungible tokens (NFTs) and create cryptocurrency partnerships, the Wall Street Journal reported. The mall-based video-game retailer has sought a digital transformation for some time.

GME stock spiked more than 25% in overnight trade. Shares rose 1.3% to 131.03 on Thursday after hitting a nine-month low intraday. But GameStop stock has fallen sharply since hitting a short-term high of 252.20 on Nov. 23. GME stock hit an all-time high of 483 on Jan. 28, 2021.

Market Rally Analysis

The stock market rally is under pressure, and Thursday didn’t do anything to change that. The Nasdaq composite fell more than 1% intraday, approaching recent lows, before rebounding, briefly turning positive. But that’s after sinking 1.3% on Tuesday and tumbling 3.3% on Wednesday, knifing through its 50-day moving average.

The S&P 500 found support at its 50-day line, but will that line hold? The Dow Jones is also starting to move toward that key level.

The Russell 2000 led the gains Thursday, but that’s after tumbling 3.4% on Wednesday. The small-cap index remains below its 200-day line.

Winners outpaced losers on the NYSE and lagged on the Nasdaq after a deeply negative Wednesday.

The Nasdaq hasn’t undercut its December lows while the S&P 500 is still above its 50-day line, but the major indexes were unable to eke out even fractional gains Thursday. The risks are still weighted to the downside. With Apple retreating and Tesla stock erasing its big Monday gap-up, there are few growth havens right now.

The last time the Fed was raising rates and cutting its balance sheet, stocks plunged into the late 2018 bear market, forcing the central bank to reverse course. Fed chief Jerome Powell is well aware of the risks and will likely try to mitigate them, but investors haven’t responded well whenever the central bank tries to take the punchbowl away.

Financials and energy stocks still look strong, with Treasury yields and crude oil prices continuing to climb. But leadership is narrow and volatile.

Nucor (NUE), which broke out Wednesday and held above its buy point in Wednesday’s market sell-off, sank 5% on Thursday. While the breakout isn’t an outright failure yet, NUE stock is well below the buy point and undercutting some key levels.

Medicals, which offered broad strength in the final weeks of last year, have been losers to start 2022.

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What To Do Now

Energy and financials are looking strong. But don’t get too concentrated in these sectors, especially after they’ve run up so much in a few days on soaring Treasury yields and crude oil prices. If you’ve missed out on these pockets of strength, you might want to wait for these stocks to digest recent gains before jumping in.

Growth stocks still look terrible. Some — by no means all — had modest bounces Thursday, but that’s after large losses or outright crashes in the past few days. Investors should look for more clear-cut strength before venturing back into growth. Most highly valued growth charts look broken and need serious repair work.

For now, investors should have a defensive stance. Cutting losses and exiting fading winners will reduce exposure automatically.

Keep reworking your watchlists. Look for stocks holding key levels with solid or rising RS lines. Some names such as ANET stock or Home Depot may make big moves, or they could succumb to the broader market weakness. That’s why this is a time to watch rather than act.

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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