Early trading on Wednesday saw a modest decline in Dow Jones futures, along with S&P 500 futures and Nasdaq futures. At the same time, Roku and GitLab are showing early signs of strength, while Meta stock may be about to signal a potential buying opportunity.
In Tuesday’s market activity, the stock market rally encountered some headwinds as Treasury yields rebounded. However, major indices managed to avoid significant losses thanks to the resilience of mega-cap stocks such as Microsoft, Meta Platforms (formerly known as Facebook) and Tesla. However, market breadth appeared relatively weak, with the Dow Jones and Russell 2000 falling below their respective 50-day moving averages.
Several notable stocks, including Meta, Tesla, Microsoft, General Electric, and MongoDB, are currently near potential buy points. Of particular interest is Meta stock, which appears to be showing early signs of possible action.
The first drivers of the market
In recent developments, Roku announced its intention to reduce its workforce by 10% while increasing its revenue outlook for the third quarter. Analysts were expecting $829 million in revenue, but Roku’s new guidance suggests a range of $835 million to $875 million.
Meanwhile, software companies Zscaler and Asana reported profits, as did software development platform GitLab. Despite Zscaler’s better-than-expected results, its shares suffered a modest decline. Zscaler stock is currently in a consolidation phase, with a potential entry point around 162.67 or 164.29.
Asana stock, on the other hand, saw a sharp decline despite beating earnings estimates. The company’s work management software has a buy point at 26.27. Asana stock closed at 21.64 on Tuesday, just below its 50-day moving average. Investors are closely watching Asana’s performance as it may set the tone for peers like Monday.com (MNDY) and Smartsheet (SMAR), with the latter reporting earnings on Thursday.
GitLab shares rose following a positive earnings report, with earnings and revenue exceeding expectations. The stock closed at 49.74 on Tuesday, up 1.2%. GitLab stock is forming a cup base within a broader consolidation, with a buy point at 54.60.
Market Analysis and Outlook
The market outlook for Wednesday reveals that Dow Jones futures are currently down 0.15%, S&P 500 futures are down 0.2%, and Nasdaq 100 futures are down 0.25%. The 10-year Treasury yield has fallen slightly to 4.25% and crude oil prices have also seen a marginal decline.
Key economic events of the day include the release of the ISM Services Index at 10 a.m. ET, with economists anticipating a slight drop to 52.4, although it is expected to remain above the neutral level of 50. Additionally, at 2 p.m. ET, the Federal Reserve will release its Beige Book report, which will provide insight into anecdotal economic conditions.
However, it is important to note that pre-market movements in Dow futures and other indices do not necessarily translate directly into actual trading results during the regular stock market session.
Stock Market Performance Summary
On Tuesday, the stock market experienced a slight setback, driven primarily by the resurgence in Treasury yields. Despite this, the Nasdaq showed resistance to selling pressure.
The Dow Jones Industrial Average fell 0.6% during the trading session on Tuesday, while the S&P 500 index fell 0.4%. In particular, Tesla stock emerged as the best performer. The Nasdaq Composite saw a marginal 0.1% decline, while the small-cap Russell 2000 saw a more substantial 2.1% decline.
In terms of commodities, US crude oil prices rose 1.3% to $88.69 per barrel. This increase was driven by Saudi Arabia’s announcement to extend its voluntary production cut of 1 million barrels per day until the end of the year. As a result, crude oil futures have seen a notable 9.9% rise during an eight-session winning streak.
Additionally, the 10-year Treasury yield rose 9 basis points to 4.27%, following a similar gain seen on Friday. In light of rising yields and weaker economic data from China and Europe, the US dollar continued its bullish momentum.
ETF Performance
Among growth-focused exchange-traded funds (ETFs), the Innovator IBD 50 ETF (FFTY) saw a 0.5% decline. In contrast, the iShares Expanded Tech-Software Sector ETF (IGV) advanced 0.45%, driven largely by the performance of major components like Microsoft. Additionally, the VanEck Vectors Semiconductor ETF (SMH) showed a modest 0.2% increase.
In more speculative stocks, the ARK Innovation ETF (ARKK) rose 0.9%, while the ARK Genomics ETF (ARKG) faced a 1.8% drop. It’s worth noting that Tesla stock is the top holding among Ark Invest’s ETFs.
Elsewhere, the SPDR S&P Metals & Mining ETF (XME) fell 1.3%, while the Global X US Infrastructure Development ETF (PAVE) saw a notable 2.7% drop. The US Global Jets ETF (JETS) fell 1.7% and the SPDR S&P Homebuilders ETF (XHB) saw a significant sell-off of 3.9%. In contrast, the Energy Select SPDR ETF (XLE) posted a 0.5% gain, while the Health Care Select Sector SPDR Fund (XLV) faced a 1% drop.
Within the industrial sector, the SPDR Select Sector Industrial Fund (XLI) fell 1.7%, and General Electric maintained a substantial position in the fund. Additionally, the Financial Select SPDR ETF (XLF) sank 1%, while the SPDR S&P Regional Banking ETF (KRE) lost 2.3%.
Stocks Close to Possible Buy Points
Several individual stocks are currently near potential buy points, indicating the possibility of upcoming investment opportunities. For example, Microsoft stock posted a 1.5% gain on Tuesday, closing at 333.55. It managed to surpass its 50-day moving average for the first time in a month. Investors are closely monitoring this development as it may generate actionable signals. MarketSmith analysis suggests a consolidation buy point at 336.78 for MSFT stock.
In the case of Meta, the stock rose 1.3% on Tuesday, closing at 300.12. It finally managed to close above the 50-day moving average, after encountering resistance for several sessions. Investors are eyeing a possible early entry point, which could materialize if the stock breaks through Friday’s high of 301.74. Additionally, Meta is on track to establish a base with a 326.29 buy point by the end of the week.
Tesla shares saw a bounce from the 21-day moving average and reclaimed the 50-day moving average with a 4.7% increase, closing at 256.49. Shares had faced a 5.1% drop on Friday, following the announcement of an update to the Model 3 in China and price reductions for the Model S, Model X and full self-driving features. Investors could consider the high of 261.18 reached last week as a possible early entry point for TSLA stock, which has an official buy point at 299.29.
General Electric shares fell 1.2% to 112.88, falling below the 21-day moving average and remaining just above the 50-day and 10-week moving averages. General Electric has established a buy point at 117.96 based on a flat base formation, marking its first consolidation since its breakout in January. Investors could consider 115.85 as a possible early entry point for GE stock.
Finally, MongoDB shares rose 0.3% to 394.13, staying above the 50-day moving average. On Friday, the stock gapped following strong earnings results, hitting an intraday high of 414. While MDB stock closed up 3% at 392.88, it remained near session lows. Investors are closely watching the stock, which has a buy point of 439, and may consider last week’s high as an early entry point from the 50-day moving average and a trend line.
Analysis of the market rebound
In Tuesday’s trading session, the stock market rally showed resilience in the face of rising Treasury yields, particularly on the Nasdaq. However, market breadth appeared weak, especially given the relatively modest losses seen in the major indices. On the Nasdaq, the losers outnumbered the winners by almost 3 to 1, while on the New York Stock Exchange the ratio was 7 to 2 in favor of the losers. New lows broke new highs.
The Russell 2000, which represents small-cap stocks, retreated below its 50-day moving average. The Invesco S&P 500 Equal Weight ETF (RSP) saw a decline of 1.2%, notably worse than that of the S&P 500. This came after the RSP closed just below the 50-day moving average the previous Friday.
The Dow Jones also fell slightly below its 50-day moving average. While the Nasdaq and S&P 500 still remain some distance above the 50-day line, the proximity raises questions about their future performance.
Energy stocks in particular performed well, while the broader technology sector held up relatively well. On the negative side, housing stocks, including construction companies, faced significant challenges. Steelmakers, industrial companies and travel-related stocks also saw declines.
It is evident that stocks closely follow movements in Treasury yields. If yields continue to rise, the market rally may face greater challenges.
What to do now
Tuesday’s market activity revealed a shift in sentiment, with more stocks posting losses compared to the previous week. However, many stocks, including Tesla, Meta, General Electric and several others, are approaching potential entry points. Investors should remain vigilant and consider increasing exposure cautiously. It is essential to be prepared to take a step back should the market or specific positions face adversity.
Also read: Wall Street opens cautiously amid concerns over China economic data: Stock market news today