What to do now as the market tries to bounce back

Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures. The stock market rallied higher on Wednesday, but it was a bumpy advance that recouped only a fraction of Tuesday’s massive selloff.




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Investors should maintain light exposure until the major indexes regain their 50-day moving averages.

Energy stocks led the way on Wednesday, as crude oil prices rose and natural gas futures jumped. Devon Energy (DVN) cleared an early entry. Exxon Mobil (XOM) is on the verge of a flashing buy signal.

Tesla (TSLA) flirted with an aggressive entry on Wednesday, retrieving a key level.

Arista Networks (NETWORK) and Clean storage (PSTG) has little work to do.

DVN stock included IBD ranking and SwingTrader. Devon Energy was also on Wednesday IBD Stock of the Day. Shares of Tesla, Devon, Arista Networks and Pure Storage are included IBD 50. Shares of Arista Networks and XOM are at IBD Big Cap 20.

Dow Jones futures today

Dow Jones futures were up 0.1% at fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures advanced 0.2%.

Investors will get a slew of economic data ahead of the stock market open on Thursday. August retail sales, as well as September’s Philadelphia Fed manufacturing index and New York Fed’s Empire State index are due at 8:30 a.m. ET, in addition to weekly jobless claims data. August industrial production is set for 9:15 am ET.

Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.


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Stock market rallies

The stock market rally recovered modestly on Wednesday morning before fading to turn negative before recovering late to close higher.

The Dow Jones Industrial Average rose 0.1% on Wednesday Exchange Trading. The S&P 500 rose 0.3%. The Nasdaq Composite advanced 0.7%. The small-cap Russell 2000 rose 0.4%.

U.S. crude oil prices rose 1.3 percent to $88.48 a barrel, although that was off session highs. Natural gas prices jumped 9.2% to $9,114 a British thermal unit (BTU)

The yield on 10-year government bonds fell 1 basis point to 3.41%. But that’s just below the 11-year high of 3.48% set on June 14.

ETFs

Avg the best ETFsInnovator IBD 50 ETF (FFTY) jumped 2.35% at Wednesday’s close, helped by energy stocks on the list. The Innovator IBD Breakout Opportunities ETF (BOOTH) rose 0.65%. iShares Expanded Tech-Software Sector ETF (IGV) rose 0.1%. VanEck Vectors Semiconductor ETF (SMH) grew by 1.1%.

SPDR S&P Metals & Mining ETF (XME) fell 3.1%, and the Global X US Infrastructure Development ETF (PAVING) fell by 1.7%. Energy Select SPDR ETF (XLE), with XOM shares a huge stake and Devon Energy also in the XLE ETF, rose 2.8%. Select Healthcare Sector SPDR Fund (XLV) rose by less than 0.1%.

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) bounced 2.75% and the ARK Genomics ETF (ARKG) 1.6%. TSLA stock is a major holding in the Ark Invest ETF.


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DVN Stock

Shares of DVN rose 4.5% to 72.17, bouncing off its 21-day moving average to hit 73.29 intraday. The oil and natural gas producer cleared Monday’s high of 71.57, suggesting early entry into a cup-with-handle base. The official one point of purchase is 75.37.

XOM Stock

Shares of XOM rose 2.45% to 97.67. According to MarketSmith analysis. Investors could use a move above Monday’s high of 99.19 as an early entry.

Tesla stock

Tesla shares rose 3.6% to 302.61, bouncing back above their 200-day moving average after breaking through that key level in Tuesday’s market rout. TSLA stock hit 306 intraday, surpassing Monday’s high of 305.49. This could have suggested an aggressive entry, emphasis on the aggressive. Investors may want to use 306.10 now as a trigger point.

The line of relative strength for Tesla shares have improved significantly over the past week, reaching their best levels since late April.

ANET Stock

Shares of Arista Networks rose nearly 2% to 122.26, bouncing back slightly from its 200-day line after falling 3.9% on Tuesday. ANET shares have a buy point of 132.97 double bottom base with a handle. But investors could use 126.80, just above Monday’s high, as an early entry.

PSTG shares

Shares of PSTG rose 0.1% to 29.67 on Wednesday, trading around its 21-day moving average after falling 3.8% on Tuesday. Shares of Pure Storage have 31.62 cup-with-handle point of purchase. Investors could use 30.98, just above Monday’s high, as a slightly lower entry.


Market Rally Analysis

The stock market rallied higher on Wednesday, but that was only a step after the Nasdaq fell more than 5% on Tuesday.

Wednesday’s relatively consistent reading of the producer price index likely gives the Federal Reserve a reason to stick with a third straight rate hike of 75 basis points on September 21, although markets are pricing in a quarter chance of 100 basis points. Perhaps more importantly, CME FedWatch tool it now shows that markets are projecting a year-end fed funds rate range of 4.25%-4.50%. That’s 50 basis points higher than before Tuesday hot consumer price index.

Potential the railroad workers are on strike as early as Friday, a negative effect is possible for a number of sectors of the “real economy”. Meanwhile, Wednesday Nucor (NUE) profit alert is a reminder that the negative portents are likely to start heating up.

It only took a few minutes for the major indexes to crash below their 50-day moving averages on Tuesday, but it could take a significant amount of time to get back above that key level. The stock market rally could hit resistance there or at nearby 21-day lines. Meanwhile, the S&P 500 and Nasdaq are near last week’s lows, with the Dow already breaking below those levels.

Energy stocks were winners on Wednesday, but closed well above intraday highs. While oil and gas names change with commodity prices, they are also subject to stock market trends.

Shares of ANET and Pure Storage aren’t as close to being actionable, but there is upside. They could give flash buy signals as the major indexes recover above their 50-day moving averages.


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What should we do now

But until the major indexes move back above their 50-day lines, investors should be cautious about adding exposure. This is a market rally under significant pressure, not a powerful uptrend.

If you take new positions, consider taking partial profits especially quickly.

All this being said, the leading stocks are generally looking better than the market indices. Investors should be building their watch lists, looking for quality names or flashing buy signals.

Read it The big picture every day to stay in sync with 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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