Dow Jones futures fell solidly Sunday, along with S&P 500 futures and Nasdaq futures. President Donald Trump said Sunday that the U.S. is “right where we want to be” as the China trade war escalates but the current stock market rally is under pressure. Despite Friday’s rebound, the Dow Jones, S&P 500 index and Nasdaq composite suffered sharp weekly losses. Apple (AAPL) was a key loser, with Apple stock falling below its buy point. Meanwhile, Advanced Micro Devices (AMD) held up well. AMD stock, Twitter (TWTR) and FANG stock Facebook (FB) all have new buy points.
Dow Jones Futures Today
Dow Jones futures retreated 0.6% vs. fair value. S&P 500 futures sank 0.65%. Nasdaq 100 futures pulled back 0.8%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. Dow Jones futures didn’t predict Friday’s morning sell-off or the afternoon rally.
Current Stock Market Rally
The current stock market rally sold off last week after President Trump tweeted on Sunday, May 5, that he planned to hike tariffs on $200 billion worth of Chinese goods from 10% to 25%. Trump carried out his threat Friday morning. Trump also is taking early steps to impose 25% on the $325 billion worth of Chinese goods not currently taxed.
The major averages rebounded from steep intraday losses to close slightly higher in Friday’s stock market trading. But for the week, the Dow Jones fell 2.1%, below its 50-day line. The S&P 500 index retreated 2.2% and the Nasdaq composite 3%, after both undercut their 50-day averages but managed to close above that support level.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid just over 2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.9%, though many top software stocks boasted strong gains or other bullish action. The VanEck Vectors Semiconductor ETF (SMH) nearly 6%, reflect a big Intel (INTC) warning and the chip sector’s exposure to a wider China trade war.
China Trade War: How How Will It Get?
Despite Friday’s positive action, the China trade war likely will continue to weigh on the current stock market rally. That’s a big shift from hopes for a China trade deal being a stock market tailwind.
A key issue for the stock market rally is how hot will the China trade war get. Trump, who famously said the trade wars are “easy to win,” tweeted Sunday that “we are right where we want to be.”
We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries…
— Donald J. Trump (@realDonaldTrump) May 12, 2019
Trump on Saturday tweeted that Beijing should “act now” or face tougher China trade deal terms later.
China has vowed to retaliate, but so far has taken no action or signaled what that action might be. After previous Trump tariff hikes, China responded immediately. Chinese leaders are likely worried about a still-fragile economy.
Apple stock, a member of the Dow Jones, S&P 500 index and Nasdaq composite, fell 6.9% last week. The iPhone maker is exposed in multiple ways to an escalating China trade war. Shares closed below the 197.79 cup-with-handle buy point, wiping out an 8.9% advance. Apple stock fell on Friday, despite the stock market rally, though it did rebound from its 50-day and 200-day lines.
The 197.79 buy point is still valid, though investors should note serious concerns with the Apple stock chart going back to the breakout. The base was relatively deep at 39%. Patterns that are 40% or more deep are less likely to work. The midpoint of the handle was just above the midpoint of the base. Finally, Apple stock broke out on light volume, suggesting a lack of institutional support.
While Apple stock may not be a great buy for now, it’s still good to see it fare well, given its influence on the Dow Jones and other major averages.
AMD stock dipped less than 1% last week to 27.96, outperforming the chip sector and broader stock market, rebounding from its 50-day line. It now has a flat base with a 30.06 buy point, within a very deep — 53% — consolidation. You could view the flat base as a new handle in that larger consolidation, but it’s the same buy point and AMD stock has shown tighter action recently.
The social networking giant retreated 3.65% last week to 188.34, though the declines were in below-average volume. Facebook stock already had a 198.58 cup-with-handle buy point on a daily chart after the prior week. But the handle didn’t show up on a weekly chart at the time as Facebook stock didn’t have much of a shakeout. But last week’s Facebook stock slide did create more of a shakeout for weak holders.
One concern for Facebook, as well as Apple and AMD stock, is that growth has weakened recently. But investors are betting on better growth in 2020.
Facebook still faces regulatory risk. On Sunday, Sen. Kamala Harris, D-Calif., said Facebook may need to be broken up, echoing calls from another Democratic presidential candidate, Sen. Elizabeth Warren, D-Mass.
Twitter stock fell 5.7% last week, finishing a handle in an 11-month cup base. The Twitter stock buy point is 41.02. One concern is that the base is 45% deep. Unlike Facebook stock, Twitter stock boasted strong first-quarter earnings growth of 131%.
As with Apple stock, just because Twitter stock, Facebook and AMD have buy points doesn’t mean you have to take a position in a breakout. The stock market rally is under pressure, with China trade news likely to shift momentum back and forth in the near future. Investors should be cautious about making any purchases and be ready to take profits.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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