After a period of time, the Dow Jones futures, as well as the potentials of the S&P 500 and the prospects of Nasdaq, experienced a slight decline. Walmart (WMT) and Alibaba (BABA) were in focus, while Palo Alto Networks (PANW) and Cisco Systems (CSCO) faced a late downturn in their guidance.
The stock market saw significant gains on Tuesday, although it closed below the daily highs of Wednesday. Treasury yields rebounded after a decline on Tuesday.
President Joe Biden held a meeting with China’s Xi Jinping near San Francisco on Wednesday.
Microsoft (MSFT) introduced an internal AI chip and another one based on Arm Holdings (ARM) designs on Wednesday. These AI chips from Microsoft aim to reduce the Dow’s dependency on Nvidia (NVDA). Following this announcement, Advanced Micro Devices (AMD), Super Micro Computer (SMCI), and ARM stock all experienced movement.
Tesla (TSLA) regained the 50-day line, while Chinese EV competitors Li Auto (LI) and BYD (DWF) displayed buy signals.
On the IBD Leaderboard, you can find Microsoft and Nvidia shares. MSFT is also included in the IBD Long-Word Leaders list. Microsoft, Nvidia, Super Micro, and LI shares are part of the IBD 50. Both Microsoft and PanW shares are listed on the IBD Big Cap 20.
Key Developments
Following strong Palo Alto earnings but a reduction in its full-year billings target, PANW shares experienced a sell-off in extended trading. During Wednesday’s session, the shares declined by 1.9% to 256.18, dropping below the purchase level of 258.88.
After-hours results from Palo Alto showed a slight decline for cybersecurity peers Zscaler (ZS) and CrowdStrike (CRWD).
CSCO shares experienced a sharp decline immediately. Despite Cisco’s earnings surpassing Q1 expectations, the Dow Jones giant lowered its full-year guidance. On Wednesday, the shares rose by 0.2% to 53.28, just below the 50-day mark.
Arista Networks also saw a modest loss during extended trading.
Walmart saw a slight increase on Wednesday and was within a buy zone, while rival Target (TGT) surged on strong results. Although both Chinese e-commerce giants are far from their highs, BABA shares rose by 3.8% as JD.com (JD) outperformed expectations.
Current Dow Jones Futures
Dow Jones futures decreased by 0.2% from fair value. S&P 500 futures fell by 0.15%, and Nasdaq 100 futures declined by 0.3%. Cisco shares are components of the Dow Jones, S&P 500, and Nasdaq 100. PANW shares are part of the S&P 500 and Nasdaq 100.
Please note that trading in Dow futures and other markets immediately does not always translate to actual trading during the subsequent regular stock market session.
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Market Rally
The stock market saw an increase on Wednesday, although gains were tempered by rising Treasury yields and Microsoft’s AI announcements.
During Wednesday’s trading session, the Dow Jones Industrial Average rose by 0.5%. The S&P 500 index saw an increase of nearly 0.2%, while the Nasdaq composite advanced by 0.1%.
The Nasdaq surpassed its daily peak in September before retracing its steps. The Nasdaq 100 was on the cusp of reaching its 52-week high from July.
After encountering resistance near the 200-day mark, the small-cap Russell 2000 gained by 0.2%, trimming its daily gains. The Invesco S&P 500 Equal Weight ETF (RSP) was just below its 200-day high, increasing by 0.5%. Both the Russell 2000 and RSP reclaimed their 50-day ranges on Tuesday.
A pause in the advance of stocks that have been leading the market, coupled with broadening market breadth, appears constructive. These factors could present new buying opportunities.
U.S. crude oil prices declined by 2% to $76.66 per barrel.
Following a 19-basis-point drop on Tuesday, the 10-year Treasury yield rose by 9.5 basis points to 4.535%.
Exchange-Traded Funds (ETFs)
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell by 0.6%, with Microsoft being a significant holding and Palo Alto another important component. The VanEck Vectors Semiconductor ETF (SMH) increased by 0.1%, with Nvidia stock being a key component and AMD also a notable holding.
The shares of ARK Innovation ETF (ARKK) and the speculative stories stock market both rose by 2.5%. Tesla remains a significant ETF holding for Ark Invest.
The SPDR S&P Metals & Mining ETF (XME) increased by 0.2%, while the STF for Homebuilders, XHB, decreased by 0.2%. The Health Care Select Sector SPDR Fund (XLV) rose by 0.1%, while the Energy Select SPDR ETF (XLE) declined by 0.2%.
The Industrial Select Sector SPDR Fund (XLI) advanced by 0.2%, and the Financial Select SPDR ETF (XLF) saw a 0.55% increase.
Microsoft’s Artificial Chips
At the Ignite 2023 event, Microsoft unveiled the Azure Maia AI device and the Arm-powered Azure CobaltCPU, aiming to reduce its reliance on Nvidia AI cards. Rumors earlier this year suggested that Microsoft and AMD were collaborating on artificial cards.
Microsoft plans to deploy the Maia AI chip in its data centers early next year. It could power Turquoise OpenAI and Microsoft Copilot. Azure Cobalt, a general-purpose data center device, is set for release in 2024.
MSFT shares rose by 13% to 369.65, within the cup-base buy point range of 366.78.
Nvidia stock declined by 1.55% to 488.88, falling short of its previous close on Tuesday but recovering losses. The stock remains above the double-bottom buy point of 476.09, with earnings scheduled for November 21.
AMD shares dropped by 1.6% to reach 118. Following earnings, the shares have been trending higher from the right side of a cup base. While the buy point stands at 132.83, a handle formation could be beneficial.
ARM shares rose by 3.7% to 55.43. The U.K.-based mobile device designer went public at 51 per share on September 15, reaching 69 on the second day of trading. Although the share price dipped to 46.50 the following month, investors may consider the level just above 56 as a potential early entry point.
SMCI shares fell to 287.78. Super Micro has garnered accolades for its AI capabilities with Nvidia cards running on its servers. After a 14.9% surge on Tuesday, SMCI stock is consolidating around initial buy points. According to MarketSmith research, the shares have an established buy point of 317.50 from a cup base.
Tesla Stock
Tesla shares rose by 2.3% to 242.84, marking the first consecutive increase in weeks. The stock is forming a double-bottom base with a buy point of 278.98. An upward trendline above 255 could offer an early entry opportunity.
Li Auto’s stock increased by 1.7% to 40.53, surpassing an early buy point of 41.14 due to minimal resistance. The company will unveil the MEGA car, its second all-electric vehicle, on Friday.
BYD, a prominent vehicle and battery manufacturer in China, rose by 1.1% to 32.30. The stock made a strong rebound on Tuesday after bouncing back from its 50-day range. Potential entry points include 32.76 or 33.80. BYD will also have significant events on Friday, including an engine presentation.
After reporting mixed third-quarter results, XPeng (XPEEV) reversed its course and increased by 2.3% to 17.39. This is close to a short-term high of 17.91, offering an aggressive entry opportunity.
Next Steps
Many market leaders have extended beyond buy points and moving averages due to the recent market surge. While there may be opportunities for new purchases or additions, maintaining a watchful stance is advisable. It’s crucial to start scaling back exposure during follow-through days.
Avoid chasing extended stocks and continue to update watchlists. Expect a considerable amount of rotation in the coming weeks. Casting a wide net across various sectors like technology, housing, and travel stocks will help capture potential opportunities.
