Dow Jones futures turned lower Wednesday morning, along with S&P 500 futures and Nasdaq futures, despite strong Netflix (NFLX) subscriber growth and other upbeat earnings reports. Futures jumped overnight but reversed as Treasury yields jumped to new highs. Meanwhile, Tesla earnings loom tonight.

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The stock market rally attempt added to gains Tuesday but closed well off highs in a volatile session. Reports of Apple (AAPL) iPhone production didn’t help. Apple stock briefly reversed lower but managed to close slightly higher.

While the market rally is still underway, it hasn’t confirmed anything yet. Investors should pay close attention and remain cautious.

Netflix subscriber growth was much stronger than expected in Q3, with the streaming TV giant also bullish on Q4 customers. Earnings also topped. Netflix stock surged, signaling a breakout. Disney (DIS) and Roku (ROKU) also rose overnight.

Intuitive Surgical (ISRG) beat Q3 EPS and revenue forecasts. ISRG stock leapt in overnight action. Intuitive shares are near lows. But results for the maker of robotic surgical systems could be a good sign for other medical gear companies.

United Airlines (UAL) delivered strong Q3 earnings and Q4 guidance, following a bullish outlook from Delta Air Lines (DAL) last week. UAL stock leapt in extended trade, with Delta adding to regular-session gains.

ASML (ASML) reported better-than-expected third-quarter earnings and a strong backlog early Wednesday. The Dutch chip-equipment giant said it’s not affected by U.S. bans on chip exports to China. Lam Research (LRCX) follows Wednesday night. ASML stock popped before the open, with Lam Research also rising. ASML and LRCX stock are just above their lowest levels since 2020.

Meanwhile, Procter & Gamble (PG) and J.B. Hunt Transport Services (JBHT) were other notable positive earnings reports.

Tesla (TSLA) is on tap Wednesday night. The EV giant should deliver strong earnings growth, but investors will want reassurance about the future.

Meanwhile, there was new evidence that Elon Musk’s Twitter (TWTR) takeover could be imminent. TWTR stock is not far from the $54.20-a-share buyout price.

Dow Jones Futures Today

Dow Jones futures fell 0.4% vs. fair value, even with P&G and DIS stock offering a small lift. S&P 500 futures sank 0.6%. Nasdaq 100 futures lost 0.6%. NFLX stock, Intuitive Surgical and United Airlines are S&P 500 and Nasdaq 100 components.

Futures reversed lower from solid gains overnight, with Nasdaq futures up more than 1.5% at one point overnight.

The 10-year Treasury yield jumped 10 basis points to 4.1%. The yield hit a 14-year high of 4.08% on Friday.

U.K. inflation moved back to a 40-year high of 10.1% in September, pushing yields higher.

Crude oil futures rose more than 1%.

The U.S. may ramp up Strategic Petroleum Reserve sales over the winter, according to late Tuesday reports. The government would pledge to buy back crude reserves at or below $67-$72 a barrel.

Beijing Covid cases hit a four-month high, raising fears of serious restrictions or lockdowns in the capital and elsewhere.

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

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Stock Market Rally

The stock market rally attempt started off strong but fell off highs almost immediately. A volatile session followed, though the major indexes closed with solid to strong gains.

The Dow Jones Industrial Average rose 1.1% in Tuesday’s stock market trading. The S&P 500 index climbed 1.15%. The Nasdaq composite advanced 0.9%. The small-cap Russell 2000 gained 1.2%.

The 10-year Treasury yield fell 1 basis point to 4%, after dropping to 3.97% soon after the market open, then rising to 4.07%, just below a recent 14-year high.

U.S. crude oil prices fell 3.1% to $82.82 a barrel amid reports that the Biden administration will release more crude from the SPR. Natural gas futures sank 4.2% after tumbling 7% on Monday.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.15%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 1.7%. The VanEck Vectors Semiconductor ETF (SMH) closed just above break-even. ASML and LRCX stock are significant SMH holdings.

The SPDR S&P Metals & Mining ETF (XME) rose 1.3% and the Global X U.S. Infrastructure Development ETF (PAVE) added 2%. The U.S. Global Jets ETF (JETS) ascended 2.5%, with United Airlines and DAL stock key components.

The SPDR S&P Homebuilders ETF (XHB) added 2.3%. The Energy Select SPDR ETF (XLE) was up 0.9% and the Financial Select SPDR ETF (XLF) tacked on 1.6%. The Health Care Select Sector SPDR Fund (XLV) increased 0.6%.

Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) rose 1.6% and ARK Genomics ETF (ARKG) gained 1.3%. Tesla stock is the top holding across Ark Invest’s ETFs.

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Apple iPhone Concerns

Apple is cutting iPhone 14 Plus production just two weeks after the big-screen handset went on sale. That’s according to The Information, citing sources. That follows earlier reports that the Dow Jones tech giant was reining in overall iPhone 14 production. However, the 14 Plus was not seen as a big seller, with investors’ focus more on the pricier iPhone 14 Pro versions.

The iPhone Plus report came as Apple unveiled new iPads.

Apple earnings are due on Oct. 27.

Apple stock did end up 0.9% to 143.75 on Tuesday. However, shares rose as much as 3.1% intraday, topping their 21-day line.

Netflix Subscribers

Netflix earnings exceeded estimates as subscribers grew by 2.41 million, vs. analyst views for about 1 million. And the tech giant sees subscribers up by 4.5 million in Q4. The streaming giant on Nov. 3 will launch an ad-supported tier for $6.99 a month. Netflix also is stepping up its efforts to crack down on password sharing in hopes to boost subscriber counts.

But the days of easy subscriber growth are long gone. It’s a tough, expensive battle just to hold onto existing customers, with Disney+, Apple+, HBO Max, Paramount+ and many more fighting for viewers’ eyeballs and wallets.

NFLX stock shot up 12% to about 271 early Wednesday. Shares fell 1.7% to 240.86 on Tuesday after jumping 6.7% on Monday. Netflix stock has a 252.09 buy point from a bottoming base, according to MarketSmith analysis. It should easily clear that level, but could test its long-sliding 200-day line.

Disney stock climbed 2% in premarket trade. DIS stock rose 1.2% on Tuesday, below declining 50-day and 200-day lines.

Roku stock rose 2% in extended action. Shares have crashed since hitting a record 490.76 in July 2021, but climbed 1.3% on Tuesday.

Tesla Earnings

Tesla earnings are due late Wednesday. Analysts expect Tesla earnings to rise 62% to $1 a share. Revenue is seen rising 62% to $22.3 billion.

But demand concerns are growing amid soaring production and declining backlogs. So investors will be eager for commentary about Tesla deliveries in Q4 and next year.

Tesla stock edged up 0.4% to 200.19 on Tuesday after rising as high as 229.75 in the morning. Tesla stock hit a 15-month low on Friday.

CEO Elon Musk could have an extra reason to be bullish on Wednesday night’s earnings call. Assuming the Twitter deal closes, perhaps by Oct. 28, Musk may need to sell additional Tesla stock in the coming days to help pay for the $44 billion acquisition. Some estimates suggest Musk may need to sell a further $8 billion in TSLA stock.

Twitter locked employee stock accounts Tuesday in “anticipation” of a deal, Bloomberg reported. Twitter stock rose just over 2% to 51.78.

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Market Rally Analysis

At Tuesday’s open, the S&P 500 and Nasdaq composite gapped above their 21-day moving averages, joining the Dow Jones and Russell 2000. All the major indexes also moved above Friday’s highs, after all had inside days Monday despite big gains.

The major indexes slashed or erased gains as Treasury yields neared recent highs, bounced back somewhat, then pulled back again on the Apple iPhone news. The Nasdaq sits well below its 21-day line while the S&P 500 closed slightly above that level, but in the lower half of the range.

At one point, the major indexes were signaling a possible follow-through day to confirm the new uptrend. The Dow and S&P 500 closed solidly higher, with volume above Monday’s level. But the gains weren’t quite strong enough to qualify as a follow-through. Closing well off session highs didn’t exactly signal strength.

An FTD could happen at any time. A confirmed market rally would be a positive signal, but not a guarantee. Even if it works, it may be another bear market rally that hits resistance at the 50-day or 200-day lines.

Booz Allen Hamilton (BAH) broke out past a flat-base buy point, closing near session highs. The relative strength line for BAH stock is at a new high, but the consulting firm’s growth is rather modest.

Aehr Test Systems (AEHR) cleared a 17.80 entry in heavy volume. The RS line for AEHR stock is at a 2022 peak. But shares are well above the 50-day line and prone to big swings.

DoubleVerify (DV) came right up to a buy point and arguably topped some slightly lower entries before slashing gains.

Meanwhile, Shockwave Medical (SWAV) and Wolfspeed (WOLF) hit resistance around their 50-day lines.

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What To Do Now

This is an interesting time. The market rally attempt has made some headway, but the action has been volatile, with both resistance and support at the 21-day line. Buying stocks is tricky, because if you buy on strength the gains can quickly disappear if the market reverses from intraday highs.

So if you do make any moves, step in slowly, and be ready to get out quickly.

There’s nothing wrong with staying entirely or nearly all in cash, waiting for more market clarity.

But while waiting, stay engaged with the market. And work on those watchlists. Stocks can quickly move into or out of position in the current climate, so make sure your watchlists are up to date. Focus on a select group of actionable or nearly actionable stocks, while also keeping an eye on a broader list of stocks exhibiting strong relative strength.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

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

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