Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures.
x
The stock market rally generally retreated last week. The S&P 500 and Nasdaq hit fresh all-time highs on Friday, before reversing to intraday lows.
Nvidia ( NVDA ) was the clear culprit on Friday, reversing a bearish reversal after the AI chip leader was extended to a historic high. The reversal affected the broader market but particularly fellow AI stocks such as Advanced Micro Devices (AMD), Taiwan Semiconductor Manufacturing (TSM), Arm Holdings (ARM) and Super Microcomputer (SMCI).
Nvidia’s reversal after a massive run could be a blip or a change in character. This is definitely a wake-up call for complacent and enthusiastic investors.
It’s time to be cautious and review your portfolio, especially if you’re heavily exposed to AI plays.
Square parents Block (SQ) and Brazilian brokerage XP Inc. (XP) flashed a buy signal on Friday. Draft Kings (DKNG) is consolidating nicely.
Nvidia stock and Arm holdings are on the IBD leaderboard, SQ is on the stock watch list. Taiwan Semiconductor Stock and Square Parent Block are on SwingTrader. Nvidia, DraftKings and ARM stocks are on the IBD 50. Nvidia, AMD and Super Micro stocks are on the IBD Big Cap 20. XP was Friday’s IBD Stock of the Day, with Square Wednesday’s pick.
The video in the article discusses the weekly market action and analyzes Nvidia, Square-parent Block and XP stocks.
Dow Jones Futures Today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze leading stocks and markets on IBD Live.
Stock market rally
The stock market rally has stalled, generally retreating after a pair of heavy tech-led sell-offs last week.
The Dow Jones Industrial Average fell 0.9 percent in last week’s stock market trading. The S&P 500 index fell 0.3% and the Nasdaq composite sank 1.2%, both retreating from record highs on Friday. The Nasdaq experienced three days of distribution during the week.
The small-cap Russell 2000 gave up Friday’s gains but rose 0.5% for the week, hitting 23-month highs. As with sector ETFs, small caps reflect a solid market breadth.
Heading into Friday, the Nasdaq was higher while Nvidia was higher. The bullish sentiment was too close. So a break was not surprising.
A market pullback can be constructive, creating new opportunities to enter popular stocks. And an Nvidia retreat, if it lasts more than a day or two, could make investors dangerously complacent.
The yield on the 10-year Treasury fell 9 basis points to 4.09 percent, its third straight weekly decline. The two-year Treasury yield, which is more closely linked to Fed policy, retreated 5 basis points to 4.48%. Fed Chairman Jerome Powell reiterated this past week that there is no rush to cut rates. The jobs report and other economic data were unchanged, but eased fears that the Fed could pull back on rate cuts.
U.S. crude oil futures fell 2.45 percent last week to $78.01 a barrel.
ETFs
Among emerging ETFs, iShares’ Expanded Tech-Software Sector ETF ( IGV ) fell 2.3 percent, though off a Tuesday low. Van Eck Vectors Semiconductor ETF ( SMH ) rose 2 percent for the week, despite Friday’s 3.9 percent downside led by Nvidia. Taiwan Semiconductor and AMD are also large SMH holdings.
The SPDR S&P Metals & Mining ETF ( XME ) climbed 2.1% last week. The Global X US Infrastructure Development ETF ( PAVE ) added 0.8 percent. US Global Jets ( JETS ) closed flat. The SPDR S&P Homebuilders ETF ( XHB ) gained 0.35%. The Energy Select SPDR ETF ( XLE ) gained 1.2%, and the Healthcare Select Sector SPDR Fund ( XLV ) rose 0.1%.
The Industrial Select Sector SPDR Fund ( XLI ) added 0.6%, extending a long winning streak. The Financial Select SPDR ETF ( XLF ) climbed 0.8%, and the SPDR S&P Regional Banking ETF ( KRE ) rose 4.1%.
Reflecting stocks with more speculation, ARK Innovation ETF ( ARKK ) fell 0.8% last week and ARK Genomics ( ARKG ) fell 4%.
Time the Market with IBD’s ETF Market Strategy
Nvidia stock
On Thursday, Nvidia stock closed 41.9% above its 50-day line, the most since 2003. On Friday morning, shares ran as high as 974, before a large, outside, bearish reversal. Shares closed down 5.55% at 875.28 on the heaviest volume of their current run.
Nvidia stock still jumped 6.4% for the week, its ninth straight weekly advance.
It remains 32.5% above its 50-day line and 11.1% above the 21-day bullish line.
A deep Nvidia pullback would have huge implications for the AI sector. That would certainly include AMD, Taiwan Semiconductor, Arm Holdings and Super Microcomputer, all of which reversed at Friday’s lows. ARM stock will remain in focus on Tuesday, with the IPO lockup period ending.
Also realizing the effects will be like software plays. Service Now (now), Palantir Technologies (PLTR), Cloudflare (NET) and Data Dog (DDOG), along with dozens of other AI plays. ServiceNow and Cloudflare were flashing aggressive entries before the Nvidia-led market reversed on Friday morning.
Given Nvidia’s size and its clear AI leadership, Nvidia’s retreat could have a big impact on the market’s rally as Friday’s action showed.
Obviously, Nvidia has been a huge winner this year alone after its massive acquisition in 2023. NVDA stock could bounce back quickly and resume its sprint to 1,000. Shares can move sideways, or move at a slower pace, as they did for a few months after the extreme expansion in late May.
Perhaps ideally, Nvidia would gradually pull back at the 21-day line or even make a new base.
But if Friday marks a change of character for Nvidia, even if only short-term, AI stock’s losses could be heavy.
Stock close to buy points
The square parent block rose 4.6 percent to 80.74 on Friday. While SQ stock has an official high handle entry of 83.29, the shares broke the handle’s downtrend and topped the original buy point at 80.29. There is a lot of overhead resistance above 80 going back years.
XP stock jumped 5.9% for the week to 25.31 on strong volume, rebounding from its 200-day moving average. Shares moved slightly above the 50-day on Friday, offering an aggressive entry. The official buy point for the XP stock is from the handle base with a 27.02 cup. The relative strength line has lagged for several months as Brazilian brokerages strengthened.
Draft Kings stock fell 4.1 percent last week to 41.74. Shares have been consolidating around the 21-day line for a few weeks, just above the buy zone from a double-bottom base. Ideally, DKNG stock will form a base on a new flat base. The 10-week line would also close the gap further.
What should be done now?
What happens next may depend on how Nvidia stock trades in the coming days.
Investors sitting on big gains in AI stocks may choose to bank some of the gains or ride on any potential returns. Investors in AI stocks that haven’t moved much recently may have big decisions to make.
It’s time to be cautious about new purchases. But several sectors are doing well outside of the AI space. So cast a wide net to update your watchlist this weekend.
Remember, while AI stocks may be the most vulnerable, most stocks will fall in a market pullback.
Read The Big Picture every day to stay in tune with market direction and leading stocks and sectors.
Please follow Ed Carson on threads @edcarson1971, X/Twitter. @IBD_ECarson And Bluesky at @edcarson.bsky.social for stock market updates and more.
You may also like:
Best Growth Stocks to Buy and Watch
IBD Digital: Unlock IBD’s premium stock lists, tools and analysis today.