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Dow Jones Futures: Stock Market Beats Expectations as Iran Fears a Spike; What to do now

Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures.




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The stock market rally sent mixed signals throughout the week, but ended on a bearish note. The Nasdaq set a record on Thursday Nvidia (NVDA) and other mega-cap and AI stocks rallied. But the S&P 500, Dow Jones and Russell 2000 suffered from hot inflation and tensions in the Middle East, while the Dow Jones and small-cap Russell remained below their 50-day range. The Nasdaq just posted a weekly gain

The CBOE Volatility index, the market’s fear gauge, spiked Friday to its highest level since late October amid concerns that Iran will attack Israel directly, raising the prospect of a much bigger conflict in the Middle East. Disappointing JPMorgan Chase (JPM) guidance, a big one Arista Networks (ANET) sell-off and trouble for China Intel (INTC) and Advanced micro devices (AMD) also took its toll.

All this led to a shift towards risk reduction, especially in the run-up to the weekend.

Investors should recognize Friday’s market expectations and react accordingly.

Important profits in prospect

Goldman Sachs (GS) and Charles Schwab (SCHW) reports early Monday. Goldman stock fell below the 50-day line on Friday, while Schwab is in a buy zone.

Giant of chip equipment ASML (ASML) and Nvidia chipmaker Taiwanese semiconductor (TSM) are perhaps the two most important earnings of the coming week. Their results and guidance will have major implications for the chip sector, including Nvidia, Broadcom (AVGO), Lam Research (LRCX), Applied materials (AMAT) and KLA Corp. (KLAC).

All of these chip stocks have new bases or potential entries.

Nvidia stock is on the IBD Leaderboard, SwingTrader, and the IBD 50. KLA stock is on the IBD Long-Term Leaders list. Nvidia, ASML and Broadcom stocks are on the IBD Big Cap 20.

Dow Jones futures today

Dow Jones futures open at 6:00 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember, overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading during the next regular stock market session.


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Stock market rally

The stock market rally had a tough week on the high CPI inflation report and Middle East concerns, with Friday’s losses negating Thursday’s bullish signals.

The Nasdaq, which closed at a record Thursday, fell 1.6% in Friday’s stock trading to end the week with a loss of 0.45%. The composite finished below the 21-day line, but just above the 50-day and 10-week lines. It is also still trading with the big reversal day of April 4.

The rest of the market looked worse.

The S&P 500 index fell 1.55% this week, down 21 days. The benchmark index closed just above the 50-day line, but below the 10-week line.

The Dow Jones Industrial Average fell 2.4% to its lowest level since late January, while the small-cap Russell 2000 fell 2.9% to its lowest level since late February. Both are clearly below 50 days.

The Invesco S&P 500 Equal Weight ETF (RSP) fell 2.6% to breach the 50-day mark on Friday. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 1.7%, below the 50-day line, to its worst level since late February.

Crude oil fell 1.4% this week to $85.66 a barrel, leaving Friday’s intraday high of $87.67. Gold climbed 1.3% to $2,356.20 an ounce, also well below Friday’s highs.

Ten-year Treasury yields rose 12 basis points to 4.5%, with Thursday’s peak of 4.59% marking a five-month high. Investors see only a modest chance of a Fed rate cut in June and are only leaning toward a move in July.

The fear meter in the stock market is rising

The CBOE Volatility Index shot up 16.1% to 17.31 on Friday, with a session peak of 19.20 the highest since late October. At the very least, excessive fear could portend a short-term bottom. But the market’s fear gauge is still a far cry from the October highs, let alone the Covid highs.

Another sentiment meter, specifically the bulls vs. bears, has been at almost excessively bullish levels this past week.

If tensions in the Middle East ease, there could be a quick rally in the stock markets. But a direct conflict between Iran and Israel could cause a much bigger fear spike and a major pullback in stocks.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 1.7% this week. The VanEck Vectors Semiconductor ETF (SMH) fell 0.9%. Nvidia and Taiwan Semiconductor are SMH’s largest holdings, with ASML, Lam Research, KLA and AMAT also holdings.

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SPDR S&P Metals & Mining ETF (XME) fell 1% last week. The Global X US Infrastructure Development ETF (PAVE) fell 3.4%. The US Global Jets ETF (JETS) fell 2.6%. SPDR S&P Homebuilders ETF (XHB) retreated 4%. The Energy Select SPDR ETF (XLE) fell 2% and the Health Care Select Sector SPDR Fund (XLV) lost 3%. The Industrial Select Sector SPDR Fund (XLI) lost 2.2%.

The Financial Select SPDR ETF (XLF) fell 3.6%, with JPMorgan as the main component. The SPDR S&P Regional Banking ETF (KRE) fell 3.5%.

Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) fell 1.25% last week and the ARK Genomics ETF (ARKG) fell 3%.


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ASML, Taiwanese semi-profits

Dutch chip equipment giant ASML reports on Wednesday morning and chip foundry giant Taiwan Semiconductor is due to appear early on Thursday.

Analysts expect ASML’s profits to decline in the first quarter, but see a recovery in the second half. Taiwan Semi’s earnings are expected to remain flat, although unofficial targets could be higher after the foundry giant reported better-than-expected first-quarter sales on April 10.

Taiwan Semi is benefiting from strong demand for AI and other advanced chips. TSMC’s guidance on revenue and capital expenditure will be critical for the industry.

ASML shares fell 1.8% last week to 961.84, closing right around the 50-day and 10-week lines. It now has a flat base with a buy point of 1,056.34. Investors could use a trendline entry around 1000 to start a position outside the 10-week period, or from the April 1 high at 1002.66.

TSM shares rose 0.85% to 142.56 this week. The shares have been consolidating for a few weeks now, but need another week to get a good footing. Investors could use the April 10 high of 148.43 as an entry point if Taiwan Semi stock rises on earnings.

Chip stocks

Nvidia shares rose 0.2% this week to 881.86. Shares rallied from the 10-week line Wednesday through Thursday before paring gains Friday, while still holding the 21-day line. NVDA stock is now on a flat base with a buy point of 974. At this point, investors could use Thursday’s high of 907.39 as an early entry.

Shares of Broadcom rose 0.35% this week to 1,344.07, finding support at the 21-day and 10-week lines amid continued tight closes, but met resistance near the 1,400 level. AVGO stock is now experiencing a consolidation, with the April 4 high of 1,403.98 serving as a buy point.

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Shares of Lam Research fell 1.2% this week to 957.04, finding support at the 10-week line. According to MarketSurge, shares have a flat-base buy point of 1,007.39. Lam has his own earnings on April 24.

Applied Materials shares were unchanged this week at 207.86, trading tight around the 21-day line. Investors might view the recent consolidation as a de facto flat base with a buy point of 214.91. A tight three-week pattern produces a slightly lower entry of 213.33, based on the April 11 high.

KLAC shares fell 0.3% to 680.78, right around the 50-day and 10-week lines. KLA has a buy point with a flat base at 729.15. A decisive move versus the 50-day line could mean an early entry. KLA earnings are expected on April 25.

What to do now

After Thursday’s strong action, expectations were that the market would continue to rise, especially the Nasdaq and leaders like Nvidia.

Instead, there was a big retreat on Friday. A direct conflict between Iran and Israel is a wild card, while JPMorgan and Arista did not help.

But whatever the reason, this is still a sideways market for the Nasdaq, and it’s difficult to handle. For the Dow and Russell 2000 – and perhaps the S&P 500 as well – it’s looking more and more like a pullback or an emerging correction.

Investors should reassess after Friday and this past week. If you entered new positions on Wednesday-Thursday, you may need to trim them or exit them altogether.

It’s still a time to work with watchlists. When the threat of war subsides and the upcoming earnings response is positive, you want to be ready. But you also have to be willing to scale more aggressively.

Now that earnings season is just around the corner, you know when your investments will report. You also need to know when your companies’ key rivals, customers and suppliers are present.

Read The Big Picture every day to stay informed about market direction and the most important stocks and sectors.

Follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.

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