Dow Jones futures fell modestly Wednesday morning, along with S&P 500 futures and Nasdaq futures. Palo Alto Networks headlined overnight earnings.
The stock market rally generally retreated Tuesday, led by AI stocks including Nvidia, which has earnings due Wednesday night.
Those results and guidance will have a big impact on the likes of Advanced Micro Devices, Arm Holdings and Super Micro Computer, all of which fell solidly Tuesday coming off lows. But Nvidia could be a catalyst for dozens of AI plays, including some fellow megacaps.
Investors should be cautious about new buys. They also have to decide whether to hold or take partial profits in Nvidia as well as other AI stocks.
The video embedded in this article discussed Tuesday's market action and analyzed Manhattan Associates, ServiceNow and GigaCloud Technology. MANH stock and ServiceNow are pulling back to key levels, while GigaCloud suffered a sharp sell-off Tuesday.
Nvidia, ServiceNow and ARM stock are on IBD Leaderboard. Nvidia, ServiceNow, Manhattan Associates and GCT stock are on the IBD 50. Nvidia, ServiceNow, Manhattan Associates and SMCI stock are on the IBD Big Cap 20.
Amazon.com will join the Dow Jones Industrial Average before the open on Monday, Feb. 26, S&P Dow Jones Indices announced late Tuesday. AMZN stock will replace Walgreens Boots Alliance. Uber Technologies will join the Dow Jones Transportation Average, replacing JetBlue Airways.
Amazon rose slightly in extended trade and Uber edged higher. Walgreens fell modestly and JetBlue was little changed.
Dow Jones Futures Today
Dow Jones futures lost 0.15% vs. fair value. S&P 500 futures slipped 0.2% and Nasdaq 100 futures fell 0.55%.
The 10-year Treasury yield edged lower to 4.27%.
Crude oil futures declined slightly.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Hot AI Play And Nvidia Partner Plunges On Weak Sales, Guidance
Earnings
Palo Alto earnings beat views but the cybersecurity giant cut full-year billings and revenue guidance. PANW stock dived more than 20% in premarket action. Shares edged down 10.1% in Tuesday's session to 366.09. Palo Alto stock is set to tumble below its 50-day line after hitting record highs earlier this month.
Several other cybersecurity stocks fell solidly on Palo Alto's guidance.
Toll Brothers earnings comfortably beat fiscal Q1 views. TOL stock rose modestly in extended trade, flirting with a breakout. The luxury-home builder rose 1.3% to 103.55 on Tuesday, rebounding from the 50-day line. Toll Brothers stock is not far from a 105.91 flat-base buy point.
SolarEdge Technologies topped EPS views but missed on revenue and guided sharply lower on Q1. SEDG stock plunged 20% before the open. The solar power inverter maker dipped 0.75% Tuesday to 84.42.
Sprout Social slightly beat Q4 views, but SPT stock sold off before Wednesday's open. Shares edged down 0.3% on Tuesday to 64.48, but once again held support at the 21-day line after reversing lower from a 66.42 cup-with-handle buy point on Feb. 12.
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Stock Market Rally
The stock market rally retreated, as investors took profits in AI and other tech stocks, though the indexes came off their worst levels.
The Dow Jones Industrial Average fell 0.2% in Tuesday's stock market trading, with Walmart providing a lift. The S&P 500 index sank 0.6%. The Nasdaq composite gave up 0.9%, but closed above its 21-day line.
The small-cap Russell 2000 gave up 1.4%, continuing to make big daily moves. It's still above its 21-day and 50-day lines.
The market rally is getting a much-needed pullback. That could be constructive, letting the moving averages catch up and creating new buying opportunities for leading stocks.
U.S. crude oil prices fell 1.28% to $78.18 a barrel.
The 10-year Treasury yield fell two basis points to 4.28%.
ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF retreated 1.2%, with Palo Alto and ServiceNow significant holdings. The VanEck Vectors Semiconductor ETF sank 2%. Nvidia stock is the No. 1 holding in SMH, with AMD a major component.
Reflecting more-speculative story stocks, ARK Innovation ETF skidded 3.3% and ARK Genomics ETF lost 2.6%.
SPDR S&P Metals & Mining ETF slumped 2% and SPDR S&P Homebuilders ETF closed fractionally higher. The Energy Select SPDR ETF fell 0.9% and the Health Care Select Sector SPDR Fund declined 0.3%.
The Industrial Select Sector SPDR Fund and Financial Select SPDR ETF dipped 0.3%.
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Nvidia Stock
Nvidia stock sank 4.35% to 694.52 on Tuesday, but came off lows, never dropping to test the 21-day line. The chip giant has rallied for six straight weeks. Shares are still above their 21-day line.
Nvidia earnings are due after Wednesday's close. Analysts expect a massive 422% EPS gain. with revenue up 237% to $20.37 billion. Those would be the third straight quarter of triple-digit gains. But investors may be expecting another blowout beat-and-raise report.
Any signs of slowing growth could slam Nvidia, the tech sector and overall market.
NVDA stock fell slightly overnight following Palo Alto and other earnings losers.
So should investors hold Nvidia through earnings, or take full or partial profits?
Those who bought around the 505.48 flat-base, base-on-base breakout in early January — or earlier — have certainly earned the right to hold NVDA stock. But it comes down to your investing style, the size of the position, your conviction in the stock and the overall market condition.
Perhaps instead of selling Nvidia, investors should consider selling other AI stocks before Wednesday's close. Many AI stocks are greatly extended while others are struggling around buy points.
Other AI Stocks
AMD stock is a direct rival to Nvidia, so will almost certainly have a big reaction to the latter's earnings report. AMD fell 4.7% on Tuesday to 165.69, tumbling below its 21-day moving average and undercutting lows for the past few weeks. It's approaching its 50-day and 10-week lines.
ARM stock gave up 5.1% to 121.77, but found support at the 10-day line. Shares have given up much of their massive post-earnings move from earlier this month, but not the initial earnings day gain.
Super Micro stock tumbled as low as 692.50 intraday, but rebounded to close down just 2% at 787.57. That followed SMCI stock's 20% dive Friday from what appeared to be a climax top after a huge run in less than a month. It's still above the 21-day moving average and more than 150% above its 200-day line.
ServiceNow stock fell 1.6% to 752.84 on Tuesday, bouncing slightly from around the 50-day and 10-week lines. It's a place to buy or add shares, but Nvidia earnings raise the risks substantially.
Like Nvidia, all four of these AI plays fell slightly to modestly in extended action amid weak earnings from Palo Alto and others.
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What To Do Now
It's not a great time to buying stocks, especially in the tech sector. Some stocks like ServiceNow and Manhattan Associates are pulling back to key levels, suggesting possible buying opportunities, but Nvidia earnings raise the risks significantly.
Investors could consider further profit taking in the very near future.
The upside of AI stocks pulling back ahead of Nvidia's results is that expectations are being lowered. That lowers the risk of a massive sell-off Thursday, while creating more of a chance for a strong positive reaction.
It's a good time to be looking for buying opportunities and setups from the current pullback. Keep your watchlists up to date.
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