Dow Jones futures fell slightly overnight, as did S&P 500 futures and Nasdaq futures. The stock market rally eased on Wednesday, with the Nasdaq leading the decline. KB Home (KBH) was late in reporting.
In the meantime, Nvidia (NVDA) and Tesla (TSLA) fell after rising on Tuesday. modern micro devices (AMD) and Google parent alphabet (GOOGL) has broken below a key level as the turbocharged artificial intelligence plays Palantir Technologies (PLTR) and AI shares fell.
Fed Chair Jerome Powell on Wednesday reiterated that more rate hikes were likely, but didn't really change the outlook from his comments after the Fed's meeting a week earlier. At best, Powell provided another catalyst for the market decline.
In hot tech and growth sectors, investors should keep an eye on leaders to see which are holding up best as the decline begins. Nvidia stock is currently looking much better than AMD stock despite Wednesday's drop.
Outside of the megacap growth and AI areas, however, sales were muted. Investors might choose to buy in some non-tech areas. Chipotle Mexican Grill (CMG) issued buy signals on Wednesday.
C3.ai (AI) will hold an analyst day on Thursday.
Tesla stock and Nvidia are on the IBD leaderboard, Chipotle is on the leaderboard watchlist. CMG shares are on SwingTrader. TSLA stock is in the IBD Big Cap 20. Chipotle was the IBD stock of the day on Wednesday.
The video in this article gave an overview of Wednesday's market action, analyzed Chipotle and compared AMD's stock to Nvidia's.
Dow Jones futures today
Dow Jones futures lost a fraction from fair value. S&P 500 futures fell 0.1% and Nasdaq 100 futures fell 0.2%.
Keep in mind that nightly action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular trading session.
KB Home Earnings
KBH shares slipped slightly in extended trading after KB Home's earnings rose solidly and sales rose 1% unexpectedly. The house builder also led higher. KB Home shares rose 1.9% to 52.01 on Wednesday on various entries.
Accenture (ACN) will report early Thursday. The IT consulting giant announced its collaboration with AI on Wednesday Microsoft (MSFT), Google and Amazon (AMZN). ACN shares fell 1.3% to 313.20 on Wednesday, a third straight fall after a sharp rise since early May.
Join IBD experts as they analyze actionable stocks from the stock market rally on IBD Live
stock market rally
The stock market rally resulted in losses for the major indices, but the Nasdaq bore the brunt of the selling.
The Dow Jones Industrial Average fell 0.3% in trading on Wednesday. The S&P 500 index fell 0.52%. The Nasdaq Composite fell 1.2%. The Russell 2000 small-cap index lost 0.2%.
US crude prices rose 1.9% to $72.53 a barrel.
The 10-year government bond yield edged down to 3.72%. The probability of a rate hike in July barely fluctuated, standing at 72% of the probability of a July rate hike. Markets are still pricing in a less than 20% chance of a second additional rate hike this year.
Among growth ETFs, Innovator IBD 50 ETF (FFTY) is down 0.6%, while Innovator IBD Breakout Opportunities ETF (BOUT) is modestly down 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.85%. The VanEck Vectors Semiconductor ETF (SMH) fell 2.3%. Nvidia stock is the #1 component at SMH, with AMD also having a big weight.
ARK Innovation ETF (ARKK) slumped 3.6% and ARK Genomics ETF (ARKG) 2.7%, reflecting more speculative story stocks. TSLA stock is Ark Invest's #1 ETF. Shares fell 5.5% outside of Wednesday's session in a downtrend but are still above the 10-day moving average. Tesla stock fell slightly overnight.
The SPDR S&P Metals & Mining ETF (XME) is up 0.85% and the Global X US Infrastructure Development ETF (PAVE) is up 0.9%. The US Global Jets ETF (JETS) fell 0.1%. SPDR S&P Homebuilders ETF (XHB) gained 0.5%. The Energy Select SPDR ETF (XLE) was up 0.8% and the Health Care Select Sector SPDR Fund (XLV) was up slightly.
The Financial Select SPDR ETF (XLF) lost 0.1%. The SPDR S&P Regional Banking ETF (KRE) fell 1.5%.
The five best Chinese stocks to watch right now
Nvidia vs. AMD stock
Nvidia fell 1.7% to 430.45 on Wednesday, outside of session lows. AMD shares fell 5.7% to 112.13. But the real divergence is in the charts. NVDA stock fell after hitting a record high on Tuesday. It is still well above the 10-day and 21-day moving averages. Shares fell slightly overnight.
In contrast, AMD stock broke the 21-day moving average on Wednesday, undercutting recent lows after falling to that level on Tuesday. It was AMD's fifth decline in six sessions, with four showing above-average volume. It all started on a downward trajectory on June 13, when AMD unveiled AI chips to challenge Nvidia.
Had AMD investors not started to spread earlier, Wednesday's devastating losses would have taken at least some of the gains.
Nvidia stock and AMD have tended to trade off for chip leadership over the past few years, and that could happen again. But for now, Nvidia is the leader while AMD is struggling a bit.
Meanwhile, Google shares fell 2.1% on thin volume on Wednesday. However, GOOGL stock fell below the 21-day moving average for the first time since May 5, according to MarketSmith. A good day could change the picture. But right now, GOOGL stock looks weaker than the other megacap tech companies.
Chipotle shares rose 1.2% to 2,073.67 on Wednesday after Wedbush raised its price target to 2,300 from 2,200. The stocks recovered slightly from the 21-day and 10-week moving averages, breaking a downtrend and clearing some short-term levels. All of these provided reasons for an early entry, even as stocks trounced their intraday highs of 2,092.51. CMG stock was trading very tight. It has a four-week tight with a buy point of 2139.88 which is on track to form a flat base after Friday.
AI Stock Investor Day
C3.ai will be hosting an Investor Day event Thursday at 1:30pm ET. Will the hot AI game maybe give some new financial clues before it opens? C3's news and commentary could fuel or dampen AI enthusiasm.
AI stock fell 9.6% to 39.04, its third straight day of above-average volume. Stocks are still more than double their early May lows and found support at the 21-day moving average.
PLTR shares tested their 21-day moving average on Wednesday, falling 7.3% to 14.64. It was also Palantir's third straight decline in above-average trading.
Analysis of the market rally
The stock market fell for the third consecutive day, with a clear decline on the Nasdaq now underway.
The Nasdaq and Nasdaq 100 led Wednesday's sell-off. That's a change from Tuesday, when Tesla and Nvidia continued to gain. The Nasdaq just tested its 10-day moving average on Wednesday, still 2% above the 21-day moving average and 7.1% above the 50-day moving average.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 1% on Wednesday, not as much as the Nasdaq or the Nasdaq 100.
The Invesco S&P 500 Equal Weight ETF (RSP) was down just 0.1% and, like the Dow and Russell 2000, traded slightly higher for much of the session.
The decliners outperformed the climbers on the Nasdaq, but it wasn't an erasure. Meanwhile, gainers slightly outperformed losers on the NYSE. New highs led NYSE but lagged slightly on Nasdaq.
All in all, this looks positive. The Nasdaq and Nasdaq 100, driven by big-cap technology companies, had been expanding while the Dow, Russell 2000 and RSP ETF and various non-technology sectors were just gaining momentum. Ideally, the Nasdaq would gradually pull back over several days or weeks so that it is no longer extended while the rest of the market only tends down or moves sideways. That would create new buying opportunities for a whole range of stocks and sectors.
Plan the market with IBD's ETF market strategy
The stock market rally so far is in a normal, healthy pullback.
Investors may now be looking outside of the tech space for new buys. But a Nasdaq-led decline is still a market decline. Sideways down action is not a good environment for short-term buying.
For now, investors should wait and see how the big AI winners of 2023 react. Will they resist the sell and find support at the 10-day or 21-day moving average?
Also keep an eye on stocks that are close to buy points, such as Monday.com (MNDY), Shockwave Medical (SWAV) and Rockwell Automation (ROC).
The ones that appear strongest when the pullback is largely gone will be the ones you want to target. Keep in mind that big winners that look strong or find support could still falter, while more impacted names like AMD could catch up.
Read The Big Picture daily to stay up to date on market direction and the leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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