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Dow Jones futures and S&P 500 futures sold off Friday morning, while Nasdaq futures fell solidly, as crude oil prices and Treasury yields plunged amid the latest coronavirus variant, and Covid-related travel restrictions.
The stock market rally closed mixed on Wednesday. But the major indexes and many growth names found support at key levels, including Tesla stock, InMode (INMD), Unity Software (U), Shopify (SHOP) and Snowflake (SNOW).
Some Fed policymakers signaled they would be open to a faster taper and earlier rate hikes if inflation continues to run hot. That was in newly released minutes from the early November Fed meeting, at which policymakers approved scaling back bond buys.
Rivian stock fell Wednesday, continuing to pull back after the initial post-IPO surge earlier this month. Rivian Automotive (RIVN) reportedly is pushing back deliveries for its R1S SUV to spring 2022 at the earliest.
Energy stocks continued to fare well Wednesday , even with crude oil prices fractionally lower. Pioneer Natural Resources (PXD) rose 1.2%, still in range from an early entry after jumping 4.2% on Tuesday, breaking a trend line and rebounding from its 50-day line.
But PXD stock plunged early Friday.
New Coronavirus Variant
A new coronavirus variant from South Africa with a high number of mutations is raising concerns. It’s not yet clear if this B.1.1529 Covid variant, dubbed “Nu,” is more infectious or deadly — or if existing vaccines will be less effective, but health officials are worried. The World Health Organization is meeting to discuss the new coronavirus variant. The WHO cautioned against new travel restrictions.
But already the U.K. is suspending flights from South Africa and five neighboring countries. Singapore is barring travelers from southern Africa as well, while Israel is barring travel from most of Africa. Cases of the “Nu” coronavirus strain have been found in travelers to Hong Kong and Belgium.
The fears over the new coronavirus variant come as Covid cases have ramped up in much of the world, including Europe. Austria has just gone back under a new lockdown. U.S. Covid cases, after rising for a few weeks, might be leveling off, but that’s unclear. U.S. coronavirus deaths have continued to decline.
Dow Jones Futures Today
Dow Jones futures tumbled 2.3% vs. fair value, spurred by Covid variant fears. S&P 500 futures retreated 1.7% and Nasdaq 100 futures lost 1%.
Energy, financial and travel-related stocks were among the hardest hit, while “Covid plays” were back in favor.
Stock markets worldwide sold as well on the new coronavirus variant and related travel restrictions. Japan’s Nikkei sank 2.5% while European bourses were generally down over 2%.
Crude oil prices plunged nearly 6%, while copper futures lost 3%. The 10-year Treasury yield dived more than 11 basis points to 1.54%.
Bitcoin and cryptocurrencies were sharp losers as well.
On Friday, the stock market will close at 1 p.m. ET, while bond markets will close at 2 p.m. ET.
Fewer retail investors and professional traders were operating overnight or likely will be during Friday’s half-day session. That could be exacerbating moves in Dow Jones futures.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally
The stock market rally opened lower on Wednesday but then rebounded to about flat, before trending higher into the close.
The Dow Jones Industrial Average closed just below break-even in Wednesday’s stock market trading. The S&P 500 index rose 0.2%. The Nasdaq composite climbed 0.4%. The small-cap Russell 2000 edged up 0.1%.
The 10-year Treasury yield fell about 2 basis points to 1.645% after reversing from just below 1.69%, near six-month highs. The 10-year Treasury yield didn’t move much on the 2 p.m. ET Fed meeting minutes release. There’s already been speculation that the Fed could step up the pace on the bond taper, perhaps as early as the December meeting, with inflation at a 30-year high.
U.S. crude oil futures dipped 0.1% to $76.39 a barrel.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rebounded 2.45%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.5%. The VanEck Vectors Semiconductor ETF (SMH) gained 1%. Nvidia stock and AMD are key SMH components, rising 2.9% and 5.3%, respectively.
SPDR S&P Metals & Mining ETF (XME) dipped 0.5% and Global X U.S. Infrastructure Development ETF (PAVE) edged down 0.3%. U.S. Global Jets ETF (JETS) inched up 0.1%. SPDR S&P Homebuilders ETF (XHB) lost 0.2%. The Energy Select SPDR ETF (XLE) advanced 1% and the Financial Select SPDR ETF (XLF) tilted 0.2% lower.
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Stocks Finding Key Support
Tesla stock tested its 21-day line for a second straight session, rebounding from early losses for a 0.6% gain to 1,116. Shares found support at their 21-day line earlier in this month. TSLA stock could be starting to form a new base, but it’s only a few weeks in.
Snowflake stock tested its 50-day line for the second day in a row, climbing 3.4% to 355.36. But this bounce is coming amid a near-vertical plunge by SNOW stock, not an ideal pullback by any means. Also, Snowflake earnings are due next week, raising a level of uncertainty.
Unity stock climbed 3.3% to 181.81, rebounding from its 21-day line after testing that support area. Could the Leaderboard stock rebound from this level or form at least a short consolidation? Or will Unity stock tumble to its 50-day line, or worse.
Shopify stock rose 3.5% to 1,628.70, a day after closing just above its 21-day line. At Tuesday’s low, SHOP stock was 7.1% below its official 1,650.10 buy point. Shopify also round-tripped a 13% gain from a 1,564.43 early entry. Either way, that was a strong sell signal. But for aggressive traders, SHOP stock arguably flashed a buy signal Wednesday.
INMD stock rose 1.7% to 84.68, back above its 50-day line. Shares are 1.6% below their 10-week line. While InMode stock is down 4.4% so far this week after tumbling 5.2% last week, it didn’t have a violent sell-off like many growth leaders. Investors might use the 21-day line as an early entry for INMD stock, which is a few weeks into a new consolidation.
Tesla, Snowflake and Unity fell slightly Friday morning. Shopify edged higher, as e-commerce plays may do well amid Covid fears. INMD stock fell modestly, with non-essential medical procedures at risk if a new Covid wave hits,
Rivian Automotive is delaying initial deliveries of its all-electric R1S SUV from January to at least March 2022 and possibly May-June. That’s according to multiple reports, citing Rivian emails to reservation holders. Rivian has already begun limited deliveries of its R1T pickup. But much of its production focus will be on making delivery vans for Amazon.com (AMZN), a key customer and major RIVN stock investor.
If true, that suggests that the Rivian R1S may not beat the Cadillac Lyriq to market, the upscale large SUV from General Motors (GM). Both will compete against the aging Tesla Model X.
Rivian stock fell 4.2% to 114.85 on Wednesday. After consolidating for six sessions, RIVN stock now has an IPO base. But it’s a long way from the 179.57 official buy point. Investors may want to look for an early entry in Rivian stock.
RIVN stock fell sharply early Friday along with the broad futures sell-off.
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Market Rally Analysis
After growth stocks got the stuffing kicked out of them over a few days, investors can be thankful that the market rally isn’t a turkey.
The Nasdaq just undercut Tuesday’s intraday low on Wednesday, but once again rallied to finish above its 21-day moving average. The Nasdaq 100 and S&P 500 also found support at the 21-day line. The Dow Jones is trading just between its 21-day and the top of its August-October consolidation. The Russell 2000 is finding support at the 50-day line.
A number of growth stocks found support, including Tesla and others mentioned here but also many others.
Just because an index or leading stock finds support at a key level doesn’t mean it will keep holding that level. Stock futures suggest broad selling pressure on Friday.
But it was a positive sign. Advancing stocks led decliners, a welcome change, but new lows still outpaced new highs, especially on the Nasdaq.
Ideally, the stock market rally would go sideways over a few weeks, letting the 50-day line close the gap vs. the Nasdaq and giving leaders a chance to form new bases or pull back bullishly. So far this week, the Nasdaq is down 1.3% while the Russell 2000 is off 0.5%. Meanwhile, the S&P 500 and Dow Jones are up slightly.
Oil names such as Ovintiv and PXD stock were looking strong. Financials are holding recent gains. A sharp drop in crude oil prices or Treasury yields would hit those respective sectors, of course. Dow futures falling overnight as crude oil prices and Treasury yields dive point to big losses for those sectors, including OVV and Pioneer.
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What To Do Now
Growth stocks often don’t make it easy to buy them, especially after the initial post-correction breakout. So investors could be tempted to buy or add to these names as they rebound from the 50-day or even 21-day lines. It’s a high-risk, high-reward strategy. If the market rally continues to bounce, you’ll likely soon have a decent cushion in leading stocks, and that gutsy buy will look “obvious” in hindsight. But if the market rally falters, or certain sectors rotate out of favor, you could see quick losses.
It comes down to your investing style. How aggressive are you comfortable with, and how quickly will you exit losing trades?
In any case, you probably shouldn’t significantly ramp up your exposure at the current levels.
There’s also nothing wrong with standing pat after reducing exposure earlier in the week. Investors don’t always have to be trading.
The plunge in Dow Jones futures overnight on the latest Covid variant suggests investors should be thinking more about paring exposure rather than adding.
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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