Dow Jones futures fell modestly Sunday afternoon, along with S&P 500 futures and Nasdaq futures. A budding stock market rally hit a roadblock Friday, in large part due to a sharp sell-off in Apple (AAPL) following earnings. Apple stock, a member of the Dow Jones, S&P 500 index and Nasdaq composite, fell 6.6%, hitting its lowest level in nearly three months. That teaches three key investing rules. Don’t buy during a stock market correction. Don’t buy a stock before earnings. And don’t buy before a stock enters a buy zone.




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Dow Jones Futures Today

Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures lost 0.25%. Nasdaq 100 futures were off 0.2%. Remember that Dow futures and other overnight action don’t necessarily translate in actual trading in the next regular session. That’s been particularly true during the stock market correction, with big swings common during regular and extended trading.

In Friday’s stock market trading, the Dow Jones fell 0.4%, the S&P 500 index 0.6% and the Nasdaq composite 1%. It was another wild session, with varying reports on China trade talks, along with soaring Treasury yields due to rising wage gains, as well as Apple earnings reaction.

Don’t Buy In A Stock Market Correction

By Thursday’s close, the stock market rally attempt looked promising, with the major averages rising solidly for three straight sessions and some top stocks breaking out of proper bases. But, there was no follow-through day to confirm a new uptrend. Until then, it’s a stock market correction.

Tempted to get into a stock market rally early? Even buying top stocks that have held up well is risky before a confirmed uptrend.

Apple stock had a been leader heading into and then during the market correction. Shares reclaimed their 50-day line Thursday. The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, had been at or near record highs during the stock market correction.

Some top stocks have cleared buy points, at least intraday, including several during the current market rally attempt. They include Tractor Supply (TSCO), Burlington Stores (BURL), Dollar General (DG), Nordstrom (JWN), Cigna (CI), United Airlines (UAL). But many of those stocks haven’t made progress or have drifted back below buy zones. So there’s not much reward for taking a bigger risk.

Don’t Buy Stocks Before Earnings

Yes, if you buy a stock before earnings and shares then go flying, you’ll reap a big gain. But there’s also a high risk that a stock will plunge.

Don’t rely on past history. In several prior Apple earnings reports, shares of the iPhone maker rebounded. That included a 6% day-after gain following the fiscal Q3 report on July 31, with Apple stock running up 20% in August. One exception was after fiscal Q1 Apple earnings in early February, amid another stock market correction. However, Apple stock’s RS line actually improved.

If you want to buy a stock before earnings, consider IBD’s earnings options strategy that can help you cash in on post-earnings stock gains, while minimizing the risk from a weak quarter.

Don’t Buy A Stock Before A Breakout

Buying Apple stock during a market correction and before earnings is two mistakes. A third is buying before a breakout. Apple stock had a high RS line, but it wasn’t at a proper buy point. When a stock breaks out of a bullish base, the odds are high that it will continue to rise and rise quickly. Virtually every investor is happy, and mutual funds that want to add shares must bid up the price.

Stock Market Rally Catalyst

Tuesday’s midterm elections could be a stock market catalyst. Polls suggest that Democrats will win control of the House, while Republicans will hold the Senate, perhaps even expanding their slim majority. But it’s still possible that the Democrats will gain both chambers of Congress or that GOP control will continue.

The stock market has tended to do well with a split Congress, and in the year after midterms.

Top Stocks To Watch

A follow-through day could come at any time. Keep following top stocks acting bullishly. Stocks like Dollar General, Burlington Stores and Cigna. With Apple’s tumble Microsoft (MSFT) may be the top mega-cap tech right now with growth accelerating and its RS line near record highs. But Microsoft stock is below its 50-day and a potential buy point.

Bottom line: Wait for a confirmed market rally and for leading stocks to enter proper buy zones.

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