Dow Jones Futures: Market Rally, Nvidia Resilient as Tesla Fails; This meter should worry you

Dow Jones futures rose slightly overnight, as did S&P 500 futures and Nasdaq futures. Software manufacturer UiPath (PATH) and SentinelOne (S) reported on Wednesday evening together with the house builder Lennar (LEN).

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The stock market rally was constructive on Wednesday. The Nasdaq fell but cleared the lows and held on to most of Tuesday's gains, similar to the AI ​​rally leader Nvidia (NVDA). Many other big tech companies remained quiet after Tuesday's strong moves.

Latecomers Tesla (TSLA), however, slumped, extending its long-term underperformance amid negative headlines.

Market breadth was solid.

While AI stocks have clearly led the market rally, a number of commodities, travel and medical devices stocks are currently in buy territory.

Freeport McMoRan (FCX), PBF energy (PBF) and royal Caribbean (RCL) has reached a buy point. Shockwave Medical (SWAV) and Dexcom (DXCM) remain in buy range.

However, bullish sentiment has reached excessive levels, indicating that a decline is likely in the coming days. The market recovery has refused to take long breaks, taking “sleeps” for a day or two before quickly revving up and looking longer again.

Nvidia and Dexcom stocks are on the IBD leaderboard. Nvidia, SentinelOne and Royal Caribbean shares are on the IBD 50. Nvidia shares are on the IBD Big Cap 20.

Dexcom was IBD Stock of the Day on Wednesday.

Dow Jones futures today

Dow Jones futures were 0.1% above fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose 0.2%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.

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Merits

Lennar's profits outperformed while sales lagged. LEN stock fell slightly overnight. Shares fell 0.3% to 165.50 in Wednesday's regular session after hitting a record intraday high. According to MarketSmith analysis, Lennar stock rose slightly from a flat base with a 156.01 buy point.

UiPath's earnings hit a peak as the automation software maker forecast a decline in first-quarter revenue but an increase in fiscal 2025. PATH stock rose slightly toward the end after initially rising sharply in a volatile session. Shares fell 0.85% to 24.43 on Wednesday, but held on to the recent move above the 50-day mark after the recent breakout failed. A move above Wednesday's high of 25.33 would provide an early entry.

SentinelOne narrowly beat fourth-quarter forecasts but forecast slightly lower revenue for fiscal 2025. Shares plunged overnight. SentinelOne shares fell 1 cent to 27.94 on Wednesday, briefly testing a downward trend line. This offered an early entry into an emerging base, but the upcoming earnings report made this risky.

Stock market rally

The stock market rally was mixed, with the S&P 500 and Nasdaq falling slightly, giving up only some of Tuesday's gains.

The Dow Jones Industrial Average rose 0.1% in Wednesday trading. Meanwhile, the S&P 500 index fell 0.2%. The Nasdaq Composite fell 0.5%, but it was an inside day to Tuesday's 1.5% rise. Nvidia fell 1.1% but was off intraday lows until a 7.2% rise on Tuesday.

The Russell 2000 small-cap index rose 0.3%. Breadth was slightly positive, although decliners narrowly led the Nasdaq.

While Nvidia and many AI hardware plays are clearly advanced, there are some software, commodities, medical device, financial, energy and travel names that are viable or emerging.

U.S. crude oil prices rose 2.8% to $79.72 a barrel. Gasoline futures rose 2.9% and 5.3%, respectively, this week to reach their highest close in nearly six months.

Copper futures rose 3.25% to $4.0525 a pound, the highest close since April 2023. It was the largest percentage gain since late 2022.

The 10-year Treasury yield rose 3.5 basis points to 4.19%.

Excessive bullish sentiment

Investors Intelligence's bull-bear sentiment indicator is reaching euphoric levels. About 60.9% of investment advisors are optimistic, with the 60% mark considered excessive. This suggests that a decline is coming, perhaps even a more severe one. But it doesn't have to happen immediately. This is the highest value since mid-2021. Only 14.5% are pessimistic, also the lowest level since 2021.

A minor pause or decline over several days or even weeks would likely cool sentiment, form more bases and give the market room to run longer. But that wasn't the pattern of the market.

ETFs

Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 0.7%. The VanEck Vectors Semiconductor ETF (SMH) fell 2%. Nvidia stock is No. 1 at SMH.

The ARK Innovation ETF (ARKK) rose 0.2% and the ARK Genomics ETF (ARKG) rose 0.3%, reflecting more speculative story stocks. Tesla shares are an important component of Ark Invest's ETFs. UiPath is also a big Cathie Wood stock.

The SPDR S&P Metals & Mining ETF (XME) rose slightly, with FCX stock included in the ETF. The US Global Jets ETF (JETS) rose 0.7%. The SPDR S&P Homebuilders ETF (XHB) gained 1.5%, with Lennar stock playing a major role. The Energy Select SPDR ETF (XLE) gained 1.6% and the Health Care Select Sector SPDR Fund (XLV) fell 0.4%.

The Industrial Select Sector SPDR Fund (XLI) gained 0.3%. And the Financial Select SPDR ETF (XLF) rose 0.7%.

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Stocks in Buy Zones

Freeport McMoRan shares rose 7.6% to 43.41 and were the best S&P 500 performer on Wednesday. Copper and gold mining broke through the double base buy point of 40.99 and closed outside the range. However, on a weekly chart, FCX stock just passed a 43.42 buy point for cups with handles.

Southern Copper (SCCO) and more diversified Teck Resources (TECK) also cleared bases on Wednesday.

PBF Energy shares rose 9% to 54.96, surpassing a 54.52 buy point for cups with handles. PBF stock is 16% above its 50-day line. Refine Peer Phillips 66 (PSX) decisively navigated a brief consolidation on Wednesday while several oil and gas machinery and services companies faced court.

Shockwave Medical shares rose 1.8% to 269.37, testing the peak of a short consolidation following an earnings gap from the 200-day line. SWAV stock has already managed to break out of a downtrend in this latest action, which could be viewed as overcoming a huge base.

Dexcom shares fell 2.7% to 131.68, falling just below the 132.03 buy point from a flat base within a much larger consolidation.

Royal Caribbean shares climbed 1.8% to 132.11, clearing a 130.97 buy point from a messy flat base. Now a competing cruise operator carnival (CCL) has made an aggressive entry as a hotel giant Marriott worldwide (MAR) attempts to break a tight pattern.

Tesla stock

Tesla shares slipped 4.5% to 169.50, hitting their lowest level since last May. Shares have plunged nearly 32% in 2024, marking the worst performance in the S&P 500 index. The relative strength line is at a 14-month low, reflecting Tesla's strong underperformance against the S&P 500 index in recent months. The RS line is the blue line in the charts provided.

Before Wednesday's open, Wells Fargo downgraded Tesla to “Underweight” and cut its price target to 125 from 200. The analyst joined a recent campaign to lower first-quarter delivery targets. He now expects earnings per share in 2024 to be almost a third below consensus. And he assumes that deliveries will not come. Wells Fargo also said a yet-to-be-unveiled cheap electric vehicle might not be a boon for Tesla, citing “likely difficult” economic conditions.

Late Wednesday, UBS cut its Tesla price target to 165 from 225 and also lowered its first-quarter delivery targets. TSLA stock fell a fraction overnight.

Fisker (FSR) plunged more than 40% late Wednesday after reports that the U.S. electric car startup and potential Tesla rival is preparing for a possible bankruptcy filing.

What now

Depending on your level of awareness, you could make incremental purchases.

The market rally isn't stopping right now, but it could continue on a good day. Meanwhile, bullish sentiment at extreme levels should give investors pause.

There is nothing wrong with standing largely still in the current environment.

Read The Big Picture daily to stay up-to-date on market direction and the leading stocks and sectors.

Please follow Ed Carson on threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.

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