Dow Jones futures tilted lower after hours, along with S&P 500 futures and Nasdaq futures. Synopsys (SNPS) and Cisco Systems (CSCO) reported late Wednesday with Walmart (WMT) and Alibaba (BABA) due early Thursday.
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The stock market rally bounced back Wednesday on optimism that President Joe Biden and Congress will reach a deal to raise the debt ceiling.
The Nasdaq hit a fresh 2023 high while the Dow Jones moved back above its 50-day line after reaching a key level.
Stocks In Buy Zones
Several stocks broke out or flashed buy signals Wednesday, including Broadcom (AVGO), ServiceNow (NOW), New Relic (NEWR), Taiwan Semiconductor (TSM), Royal Caribbean (RCL) and Darden Restaurants (DRI). Those reflect areas of market strength: chips, software, travel and restaurants.
Broadcom and TSM join a number of chip stocks that have broken out or triggered early entries in the past few days.
NOW stock broke out of a cup-with-handle base, with an AI push and a first-ever buyback providing the latest oomph, as software names quietly make a comeback as well.
NEWR spiked 11% to 83.84, blasting out of a base with an 80.98 buy point. Private equity firms are mulling a bid for New Relic (NEWR), The Wall Street Journal reported just before Wednesday’s close. The database software stock already had flashed early buy signals.
RCL stock broke out Wednesday. Meanwhile, rival Carnival Corp. (CCL) and big carriers United Airlines (UAL), American Airlines (AAL) and Delta Air Lines (DAL) all flashed early buy points as well Wednesday.
DRI stock raced above a flat-base buy point. Several other restaurant stocks have already run above buy zones, as dining out remains strong. But Tesla (TSLA) remains below key levels.
Separately, TSLA stock made a strong move following Wednesday’s Tesla shareholder day event. But it’s not near a buy point.
Investors should consider adding exposure, cautiously. Be ready to step back if the market falters yet again.
Debt-Ceiling Talks Optimism
Biden said he was “confident” that “America will not default.” The president made those comments just before leaving on a trip to Japan. His Tuesday decision to cut short his Asian trip and return Sunday helped push the stock market to session lows near the close. House Speaker Kevin McCarthy criticized Biden for leaving the country during debt-ceiling talks, but also remained hopeful about a deal to head off an early June default. “I think at the end of the day, we do not have a debt default.”
White House and congressional staff continue to work on a debt-limit deal behind the scenes. Wall Street strategists are increasingly confident that political leaders will avoid a destabilizing U.S. default.
Earnings
SNPS stock rose modestly after Synopsys earnings topped and revenue edged past fiscal Q2 views. The chip-and-electronics design software maker also raised guidance. Shares advanced 0.5% to 377.08 in Wednesday’s session, slightly extending Tuesday’s move above the 50-day line. That would have offered an early entry if it weren’t for earnings. Synopsys stock has a 392.89 flat-base buy point. Rival Cadence Design Systems (CDNS) edged up after hours but is below its 50-day line. It’s on track to have its own flat base after this week.
CSCO stock fell solidly overnight even though Cisco earnings beat fiscal Q3 views and the networking giant slightly raised Q4 guidance. Shares climbed 1.5% on Wednesday to 47.63. Cisco stock has a 52.66 flat-base buy point, but just above the 200-day line and below the 50-day line.
WMT stock edged down 0.2% to 149.53 on Wednesday, its fourth straight decline. Shares are still above a 148.44 double-bottom buy point. Investors may want to focus on a new 154.45 handle entry, just below a record high. Walmart earnings follow Target (TGT) results early Wednesday.
BABA stock rose 2.2% to 90.68 Wednesday, reclaiming its 50-day and 200-day lines.
RCL stock is on the IBD Leaderboard watchlist and on SwingTrader. AVGO stock and Royal Caribbean are on the IBD 50. SNPS stock and peer Cadence Design are on the IBD Long-Term Leaders. Broadcom and AVGO stock are on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value, with CSCO stock and Walmart both Dow components. S&P 500 futures dipped 0.1% and Nasdaq 100 futures edged lower.
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 started with slim gains but soon gained momentum.
The Dow Jones Industrial Average rose 1.2% in Wednesday’s stock market trading, along with the S&P 500 index. The Nasdaq composite gained 1.3%. The small-cap Russell 2000 jumped 2.2%.
U.S. crude oil prices popped 2.8% to $78.23 a barrel.
Copper futures bounced 2.4% after skidding Tuesday to the lowest close since Nov. 29.
The 10-year Treasury yield rose 3 basis points to 3.58%, up 18 basis points over four sessions.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) jumped just over 2%, with NOW stock a notable holding. The VanEck Vectors Semiconductor ETF (SMH) popped 2.7%, with TSM stock and Broadcom big components.
CDNS stock and Synopsys are part of the IGV and SMH ETFs.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) bounced 2.55% and ARK Genomics ETF (ARKG) 1.7%.
Tesla stock is Ark Invest’s No. 1 holding across its ETFs. Tesla shares jumped 4.4% to 173.86, rebounding back above the 21-day line, as Elon Musk reiterated that the Cybertruck is coming this year while saying Tesla will “try” advertising to boost sales. TSLA stock remains below its 50-day moving line, with some distance from the 200-day line.
SPDR S&P Metals & Mining ETF (XME) climbed 1.8%. U.S. Global Jets ETF (JETS) ascended 4.3%, with UAL stock, American and Delta all components. SPDR S&P Homebuilders ETF (XHB) advanced 1.6%. The Energy Select SPDR ETF (XLE) rallied 1.9% and the Health Care Select Sector SPDR Fund (XLV) edged up 0.1%
The Financial Select SPDR ETF (XLF) popped 2%. The SPDR S&P Regional Banking ETF (KRE) leapt 7.4%. Western Alliance Bancorp (WAL) disclosed that deposits have climbed by $2 billion since the end of March. WAL stock jumped 10%. PacWest Bancorp (PACW) spiked nearly 22%.
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Market Rally Analysis
The stock market rally bounced back from a disappointing Tuesday, with strong gains in higher volume.
The Nasdaq composite hit fresh 2023 highs after grudgingly falling Tuesday. The S&P 500 bounced from its 21-day line, just below its 2023 highs, though the 50-day line isn’t far away either on the downside. The Dow Jones reclaimed its 50-day line.
The Russell 2000 jumped, reclaiming its 50-day line for the first time in two months.
Market breadth was strong after an especially bleak Tuesday.
The Nasdaq 100 rose 1.2% after edging up 0.1% on Tuesday. Even better, the First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rebounded 1.2%, moving to the highest level in nearly a month. It was a bullish move, but QQEW could easily fall through the 50-day.
The Invesco S&P 500 Equal Weight ETF (RSP) bounced 1.3%, though after skidding 1.4% on Tuesday. RSP remains below key moving averages. Moving decisively above those levels would be a sign of improved market breadth.
Market leadership has broadened slightly. Chips, software, travel and restaurants all have a number of stocks showing strength, with Taiwan Semi, ServiceNow, Royal Caribbean and Darden joining them. Homebuilders are pausing after big runs, but looking healthy.
Biotechs bounced back after the FTC’s move to block the Amgen (AMGN) takeover of Horizon Therapeutics (HZNP) raised broader M&A concerns.
Markets rallied on debt-ceiling talk optimism, along with easing banking fears. If and when there is a deal, stocks could jump, but investors also could sell on the news. Remember, it’s not the news that matters, it’s the market reaction to the news.
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What To Do Now
With the market in a narrow sideways pattern, it doesn’t take much to trigger bullish or bearish moves. Tuesday’s action was worrisome, with the Dow breaking below the 50-day line and a number of metrics looking grim. Wednesday’s solid bounce was encouraging, with the Nasdaq once again hitting highs and a number of stocks breaking out.
Perhaps Wednesday is the start of a solid run for the market rally, either for a short span or a longer-term bull uptrend. But it could also be a short-term blip within a choppy pattern.
Investors could have added some exposure Wednesday. They could keep doing so if the market rally continues to make progress. But do so gradually, and be ready to step back out if the market or your individual positions falter once again.
It’s definitely a time to be prepared to take action. So get your watchlists ready.
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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