Dow Jones futures fell early Thursday, along with S&P 500 futures and Nasdaq futures, despite positive Cisco earnings and Mastercard (MA) comments.The coronavirus stock market rally pulled back for a second straight session on Wednesday, as Fed chief Jerome Powell said he sees "significant downside risks" and an "uncertain path" of the coronavirus recovery. But the major indexes and leading stocks pared losses significantly into the close.
XSo far the coronavirus stock market rally, especially the Nasdaq and leading stocks, hasn't shown too much damage. But further losses would be more concerning. Investors should adopt a more cautious stance, still keeping an eye out for potential buys if the rally revs higher again.
The pullback is offering a chance for some stocks to take a breather. Apple (AAPL), Facebook (FB), Google parent Alphabet (GOOGL), Tesla (TSLA) and ServiceNow (NOW) are working on possible handles. None of these names, with the possible exception of Tesla stock, has an actual handle yet. And having a handle isn't a green light to buy.
Apple stock and ServiceNow stock are on IBD Leaderboard. Apple, Facebook stock and Google stock were all "Blue Dot" specials on Wednesday. Those are stocks with superior relative strength but still in bases.
Meanwhile, Cisco Systems (CSCO) reported better-than-expected earnings late Wednesday. While Cisco stock has been a laggard for some time, the networking giant still provides insight into business IT spending.
Also, Mastercard said it's starting to see "normalization" starting in consumer spending in recent weeks. Mastercard stock rose overnight, while archrival Visa (V) and digital payments leader PayPal (PYPL) edged lower.
Early Wednesday, website design software maker Wix.com (WIX) reported strong earnings and guidance. Wix stock surged before the open after breaking out earlier this week.
Dow Jones Futures Today
Dow Jones futures fell 0.7% vs. fair value, swinging between modest gains and losses overnight. S&P 500 futures sank 0.65%. Nasdaq 100 futures were down 0.6%. Cisco stock, a Dow Jones, S&P 500 and Nasdaq component, gave modest lift, though it has far less weight than fellow triple-threat Apple stock.
Dow Jones futures remain prone to big overnight moves, even if massive whipsaw action is less common.
At 8:30 a.m. ET, the Labor Department will release jobless claims for last week. Economists expect another 2.5 million people to file for unemployment benefits.
Crude oil futures rallied as the International Energy Agency said crude oil demand is falling less than previously feared.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session. That's certainly been true in the past two days.
Coronavirus News
Coronavirus cases worldwide moved above 4.44 million. Covid-19 deaths reached 298,000.
Coronavirus cases in the U.S. have topped 1.43 million, with deaths at least 85,000. New coronavirus cases in the U.S. have slowed to their lowest levels in several weeks, even as Covid-19 testing has picked up. The share of coronavirus tests that are positive also has retreated, another positive sign.
Much of the recent improvement has come from the New York and New Jersey area, but not all. So far states that are easing coronavirus shutdowns aren't seeing a big spike in Covid-19 infections, though that might show yet. Of course, states are not flipping a switch from complete shutdowns to fully open. Also, businesses and individuals continue to follow social distancing and wearing masks to a great extent.
Meanwhile, cases continue to rise sharply in Russia, which now has more than 252,000 confirmed Covid-19 infections. That's third behind the U.S. and Spain.
Coronavirus Stock Market Rally
The coronavirus stock market rally fell for a second straight session. Unlike Tuesday's sell-off into the close, the major indexes pared losses in the final minutes.
Fed chief Jerome Powell said there are "downside risks" and long-term damage to the U.S. economy due to the coronavirus pandemic. He said more fiscal stimulus likely will be needed. Democrats and Republicans are divided over whether more coronavirus aid is needed, and what provisions might be in it.
The Dow Jones Industrial Average fell 2.2%, finding support at its 50-day line. The S&P 500 index retreated 1.7% and the Nasdaq composite 1.5%. The Nasdaq, which has been leading the coronavirus stock market rally, held support above its 21-day exponential moving average. Breaking below that 21-day line, especially so quickly, would be a concern.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid 1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 2%. The VanEck Vectors Semiconductor ETF (SMH) retreated 1.8%.
Cisco Earnings
Cisco earnings unexpectedly edged up to 79 cents a share in fiscal Q3 vs. 78 cents a year earlier. Revenue fell 8% to $11.98 billion. Analysts expected Cisco earnings of 71 cents a share on sales of $11.88 billion.
The networking giant, which has been expanding into services and security from its legacy router and switch business, sees declining EPS and sales in fiscal Q4. But the profit guidance is above targets while the revenue forecast is in line.
While not great news for IT spending, it's not a disaster either.
Cisco stock rose 2% early Thursday. Shares fell 2.9% to 41.95 in Wednesday's stock market trading. Cisco has been trading below its 200-day moving average for the past nine months.
Mastercard Sees 'Normalization'
In a statement after the close, Mastercard said "we believe that we are starting to see the transition from the Stabilization phase to the Normalization phase in some markets, although it is very early days." Payment transactions by various measures are showing smaller year-over-year declines in the past few weeks.
Mastercard stock rose slightly before the open. Visa stock edged lower. Both MA and V stock are hitting resistance around their 200-day lines. PayPal, which has surged to record highs, edged lower overnight.
Mastercard and PayPal stock are on the IBD Long-Term Leaders screen.
Apple Stock
Apple stock fell 1.2% to 307.65 on Wednesday. On a daily chart, AAPL stock is modestly extended from a 288.35 cup-with-handle buy point. But on a weekly chart, Apple didn't form a handle. It could be forming a handle on a weekly chart, though it would need to finish the week down. That would provide a 319.79 entry, not far from late January's all-time high.
The relative strength line for Apple stock is at a record high. The RS line, the blue line in the charts provided, reflect a stock's performance vs. the S&P 500 index.
On a weekly MarketSmith chart, Apple stock has a blue-shaded dot on the end of its RS line. Blue Dot stocks have RS lines at highs, but are still in bases and haven't broken out. That's why Apple is a Blue Dot special on a weekly chart, but not on a daily.
MarketSmith users can find Blue Dot stocks, as well as new and recent breakouts and stocks near buy points via the Open Stock Ideas button.
Tesla Stock
Tesla stock retreated 2.3% to 790.96. The TSLA stock chart is volatile, making it riskier. Tesla stock corrected 64% from its Feb. 4 peak of 968.99 to its March 18 low. Shares then rallied furiously. They broke out of a handle entry at 775.05 shortly before earnings, then reversed lower following results and an Elon Musk tweet that he thought Tesla stock was too high.
But Tesla stock rebounded from its 21-day line. Arguably, it already has a new handle with an 869.92 entry. But a longer pause with a handle — or a new, proper base within the wild consolidation — would be helpful.
Despite volatile share price action, the RS line for Tesla is right at record highs. It would have been a Blue Dot special in recent days but it's consolidation was too deep to be recognized by MarketSmith pattern recognition.
While the Tesla Fremont plant is operating once again, there remains huge uncertainty about demand for autos generally and luxury electric vehicles in particular amid a massive recession.
On Thursday, Tesla said it's begun producing longer-range Model 3 variants at its Shanghai plant ahead of schedule. China subsidies will end for the more-expensive Model 3 vehicles after July, so they could see a burst in demand. Earlier this week, a China trade group said Tesla sales plunged 64% in April vs. March, even as the overall EV market showed month-to-month improvement.
Facebook Stock
Facebook stock sank 2.4% to 205.10. Since its March 18 low, FB stock has run up quickly without much of a breather. It currently has a 224.30 cup-base buy point, but it could have a handle in a few days on a daily and weekly chart. That would offer a slightly lower entry.
The RS line is at record highs once again, making Facebook stock a Blue Dot special once again.
Google Stock
Google stock slid 1.95% to 1,348.33. As with Facebook stock, GOOGL stock has been moving up the right side of a cup base. The current entry is 1,530.84, but it could be starting a handle.
Google stock also is a Blue Dot special.
ServiceNow Stock
ServiceNow stock lost 1.2% to 361.29, undercutting a 363.05 cup-base buy point, but off intraday lows of 351.29. NOW stock had run up sharply from the bottom and gapped up near a breakout on earnings, and never really took a breather. While the 363.05 entry is still valid, investors might want to wait for ServiceNow stock to clear the old high with a 388.60 buy point, with its high handle-like action. It's a clear resistance area for NOW stock itself. Further, shares likely won't return to new highs unless the coronavirus stock market rally perks up again.
ServiceNow is on the Long-Term Leaders list.
Let The Stock Market Be Your Guide
An earlier Stock Market Today column discussed whether the coronavirus stock market rally was too fast, too furious given the economic reality. The column noted that ultimately investors need to pay attention to what the stock market is doing, rather than try to impose personal beliefs or predictions on the market.
That still holds today. What you or I think about the coronavirus stock market rally — or specific names such as Apple stock or Tesla stock — doesn't matter. Right now the stock market, via the major indexes and leading stocks, is pulling back. And the vast majority of stocks, including growth names like Facebook stock, Google stock and ServiceNow stock, will fall with the broader market.
For now, investors should adopt a slightly more cautious stance and be ready to cut holdings based on stock-specific or market action.
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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