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What To Do Amid Market Rotation; 3 Stocks In Buy Zones

Dow Jones futures were little changed late Tuesday, along with S&P 500 futures and Nasdaq futures. The stock market rally continued its move away from techs, and toward energy and financials on Tuesday. Tesla stock fell but held key support while other megacaps such as Apple (AAPL) barely budged.




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After several weeks of a broad-based rally, the stock market has returned to sector rotation. It’s a trickier environment for investors, especially for new buys.

Software continues to get hammered. Asana (ASAN) and Digital Ocean (DOCN) extended Monday’s big sell-offs, while Snowflake (SNOW) skidded to its 50-day line.

Tesla (TSLA) fell hard but paring losses. Other megacaps were little changed. Microsoft (MSFT) fell, slightly, for a second straight session. Google parent Alphabet (GOOGL). and Nvidia (NVDA) also edged lower. But Apple stock and Amazon.com (AMZN) edged higher.

On the upside, energy stocks were strong Tuesday as crude oil prices rose despite President Biden, with Pioneer Natural Resources (PXD) among the shale names flashing buy signals. Financials rose again as Treasury yields continued to climb.

Key Earnings

In overnight earnings news, PC maker HP Inc. (HPQ) and Pure Storage (PSTG) surged on earnings. HPQ stock and PSTG stock gapped out of bases. Autodesk (ADSK), Nordstrom (JWN) and Gap (GPS) sold off.

Retailers were big earnings movers in Tuesday’s session, with Best Buy (BBY) and Dick’s Sporting Goods (DKS) plunging on earnings while Dollar Tree (DLTR) extended its recent run.

Tesla stock, Microsoft, Nvidia, Google and Snowflake are on IBD Leaderboard. Apple stock and Pioneer Natural Resources are on SwingTrader. Microsoft and Google are IBD Long-Term Leaders. Tesla, Google and Nvidia stock are on the IBD 50. Pioneer was IBD Stock Of The Day.

The video embedded in the article analyzed the market action as well as Xpeng (XPEV), PXD stock and SNOW stock.

Dow Jones Futures Today

Dow Jones futures about even with fair value. S&P 500 futures and Nasdaq 100 futures fell 0.1%.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. The past few days have showed relatively quiet action in Dow futures that didn’t foreshadow the regular session divergence.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock Market Rally

The stock market rally once again started off with modest moves in the major indexes, followed by significant divergence. However, that divergence narrowed a little bit.

The Dow Jones Industrial Average rose 0.55% in Tuesday’s stock market trading. The S&P 500 index climbed 0.2%. The Nasdaq composite fell 0.5%, though that was well off session lows. The big-cap Nasdaq 100 also lost about 0.5%. The small-cap Russell 2000 dipped 0.1%.

The 10-year Treasury yield rose four basis points to 1.67%, after jumping nine basis points on Monday. Crude oil futures climbed 2.3% to $78.50 a barrel.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 1.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.3%.  The iShares Expanded Tech-Software Sector ETF (IGV) sank 1.6%. Microsoft stock is a major IGV component. The VanEck Vectors Semiconductor ETF (SMH) retreated 0.7%. Nvidia stock is a key SMH holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) gave up 2.3%, hitting a fresh six-month low. ARK Genomics ETF (ARKG) slid 1.3%%, another 52-week low. Tesla stock is still the top holding across ARK Invest’s ETFs, but ARK funds have been paring TSLA holdings in recent months.

SPDR S&P Metals & Mining ETF (XME) rose 0.3% and Global X U.S. Infrastructure Development ETF (PAVE) climbed 0.4%. U.S. Global Jets ETF (JETS) fell 0.45%. SPDR S&P Homebuilders ETF (XHB) dipped 0.1%. The Energy Select SPDR ETF (XLE) rallied 3.1%, with PXD stock a top 10 holding. The Financial Select SPDR ETF (XLF) climbed 1.6%.


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Market Rally Analysis

This is still a confirmed stock market rally. The major indexes are not that far from all-time highs.

Still, the broad-based market uptrend that took hold in October and early November is become trickier to handle. After Monday’s downside reversal from record highs, the Nasdaq fell again Tuesday but closed above its 21-day line after fighting support near its Nov. 10 low. The small-cap Russell 2000 found support its 50-day line. The Dow Jones rose slightly for a second straight session, but is still below its 21-day line.

The stock market rally’s rotation out of growth isn’t especially surprising. At Monday’s record high, the Nasdaq 100 was more than 8% above its 50-day line, signaling a strong risk of a pullback. And that’s what happened. Megacaps either slashed gains, such as Tesla and Apple stock, or reversed lower, like Nvidia stock. Meanwhile, many hot software stocks such as Asana, SNOW stock and related high-value names such as Airbnb (ABNB) and DoorDash (DASH) tumbled.

Selling continued Tuesday in software names. SNOW stock found support at its 50-day line, but a two-day 12% tumble is not the way you want to see growth names pull back

Tesla stock fell 4%, but bounced off its 21-day line. Other megacaps were little changed but are no longer masking underlying weakness in growth and the broader market rally.

The FFTY ETF, which plunged below its 50-day line on Monday, is testing its 200-day line. Keep in mind that the FFTY, like growth stocks overall, fell last week even as Apple stock and other megacaps surged higher.

The IGV ETF skidded through its 50-day line Tuesday, even with MSFT stock still far above that key level. And while high flying growth stocks are struggling, beaten-down high-value stocks such as ARK-owned Roku (ROKU) and Teladoc (TDOC) haven’t had any immunity to the selling.

Retail stocks were definitely hit or miss, with big positive and negative moves on earnings before and after Tuesday’s session.

On the upside, energy stocks and banks are rallying with crude oil prices and Treasury yields. Some are flashing early entries or other buy signals. Steel stocks largely held their ground after Monday’s big move.


Time The Market With IBD’s ETF Market Strategy


What To Do Now

When meme stocks were dominating attention earlier in the year, IBD would ask, what’s your edge in trading those names? Now with sector rotation back in force, what exactly is your edge in the current market environment?

Will the market rally regain broad-based strength, or will the broader market skid lower? Is the sector rotation into commodity plays and financials going to last, or will growth quickly rebound?

In the here and now, many growth stocks look severely damaged, while others are fighting for key support.

Some huge winners like Nvidia stock are holding up relatively well, but how long can the megacaps withstand a broad growth sell-off?

Investors should have reduced exposure over the past couple of days. Much of that likely came from selling losers and taking partial or total gains in winners that were selling off hard. But investors simply may have wanted to reduce exposure in an uncertain environment, holding on to long-term winners.

While cutting back on growth, investors could be making buys in energy stocks such as PXD or bank stocks or ETFs. But investors may want to treat any such buys as swing trades, taking at least partial profits at, say, a 5% gain and cutting losses very quickly. Why? Because with sector rotation back in play, energy and financial stocks could easily sell off quickly if oil prices and Treasury yields fall back again.

The upcoming Thanksgiving holiday will likely keep volume low on Wednesday and especially in Friday’s half-day session, so it’ll be harder to judge the action in leading stocks and the major indexes until next week.

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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