Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures. Nvidia (NVDA) and AMD shares fell overnight after the chip giants said the US government had imposed export restrictions on some chip sales in China. On Thursday morning, electric car startups in China like Nio will launch sales for August.
The stock market rally made a brief, feeble attempt at a recovery on Wednesday, with major indexes hitting resistance at the 50-day moving average before turning lower.
Nvidia shares fall on Chinese restrictions
Shares of Nvidia tumbled nearly 7% in overnight trading. The chip giant said in an SEC filing that the US government has imposed new licensing requirements that bar sales of certain advanced data center chips in China and Russia. Nvidia said the U.S. cited concerns about “end military use.” Nvidia, which does not currently sell products in Russia, said the restrictions could affect $400 million in sales in China.
The US government is increasingly placing restrictions on China’s high-end chip technology.
Rival of Nvidia Advanced Micro Devices (AMD) reported a similar notice from the US regarding the sale to China of various GPUs using AI. AMD shares were down 4% in late trading. Taiwanese semiconductor manufacturing (TSM), which makes Nvidia chips, fell 2%.
The SMH ETF, of which all three chipmakers are a major part, was down 2 percent in late trade. Several other chip stocks fell modestly after the Nvidia and AMD news.
Clean storage (PSTG) major overnight gains. Shares of PSTG jumped on better-than-expected earnings as well as revenue guidance. Shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day line. Shares of PSTG may test a buy point of 31.62 from a cup-with-handle base.
Electric vehicle sales in China
Early Thursday, Chinese EV startups Nio (NIO), Li Auto (LI) and XPeng engines (XPEV) will report shipping data in August. EV and battery giant BYD (BYDDF) will likely report on Friday or Saturday. Nio’s shares, along with those of Li Auto, Xpeng, BYD and Tesla (TSLA) are currently struggling.
With the market rally so weak, investors should be on the lookout for new purchases and act to reduce exposure. But they should be looking for potential leaders for their watch lists.
Enphase Energy (ENPH), Pinduoduo (PDD) and NBIX shares are consolidating nicely, with lines of relative strength at 2022 highs
Shares of Enphase Energy and PSTG are on the market IBD 50 list. ENPH shares are also at IBD Big Cap 20. Neurocrine Biosciences (NBIX) was on Wednesday IBD Stock of the Day.
Dow Jones futures today
Dow Jones futures were down 0.25% at fair value. S&P 500 futures sank 0.6 percent and Nasdaq 100 futures fell 1 percent, with AMD and Nvidia shares weighing on S&P 500 and Nasdaq futures.
Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.
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Stock market rallies
The stock market rally tried to live up to its name at Wednesday’s open, but major indexes quickly retreated to close at session lows.
The Dow Jones Industrial Average lost 0.9% on Wednesday Exchange Trading. The S&P 500 was down 0.8%. The Nasdaq composite fell 0.6%. The small-cap Russell 2000 also fell 0.6%.
The price of US crude fell 2.3% to $89.55 a barrel.
The 10-year Treasury yield rose 2 basis points to 3.13%.
Avg the best ETFsInnovator IBD 50 ETF (FFTY) decreased by 0.4%. iShares Expanded Tech-Software Sector ETF (IGV) and the VanEck Vectors Semiconductor ETF (SMH) fell by 0.7%. Shares of TSM, Nvidia and AMD are major holdings of SMH.
SPDR S&P Metals & Mining ETF (XME) decreased by 0.8%. SPDR S&P Homebuilders ETF (XHB) declined by 1.2%. Energy Select SPDR ETF (XLE) gave up 0.9%. Select Healthcare Sector SPDR Fund (XLV) fell by 0.6%.
Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) was down 0.1%, while the ARK Genomics ETF (ARKG) rose 1.3%. Tesla stock is a major holding in Ark Invest’s ETF. Cathie Wood’s Ark also owns some shares of Nio and BYD.
The five best Chinese stocks to watch now
Stocks to watch
Enphase shares rose 0.2% to 286.44 on Wednesday, still consolidating over the past few weeks, holding support at the 21-day moving average. This comes after the stock jumped on the back of Enphase’s earnings in late July. The blue RS line in the charts provided is holding at record highs. This reflects the outperformance of ENPH shares relative to the S&P 500 index.
Shares of PDD jumped 7.2% on Wednesday to 71.30, clearing a base of 68.81 point of purchaseAccording to MarketSmith analysis. This follows Monday’s 15% jump in Pinduoduo’s earnings, with the stock briefly clearing a buy point that day. The RS line for Pinduoduo stock is at consolidation highs, right at the best levels since last November. While PDD shares are in a buy zone, they are 28% above the 50-day line.
Shares of NBIX rose 1.3% to 104.63, bouncing back slightly from its 21-day line. Shares retreated slightly from an Aug. 9 peak of 109.26. That high capped a big breakout in earnings. NBIX shares could form a new base, but action could be taken from a break of the trendline in the current short consolidation. The RS line is at a 52-week high.
Electric vehicle sales in China
Nio, Li Auto and XPeng reported August deliveries ahead of Thursday’s open. After all three electric car startups in China slightly exceeded 10,000 deliveries in July, Nio and XPeng may miss that mark in August, while Li Auto may not even reach 5,000.
Nio delivered 10,052 electric vehicles in July. On August 28, Nio started deliveries of the ES7 SUV. The ET5 sedan follows on September 30, following the ET7 luxury sedan in March.
Shares of Nio rose 0.6% to 19.95 on Wednesday, trading below the 50-day line. The stock is working on a 24.53 bottom buy base that would include a break above the 200-day line.
Li Auto shipments fell in August, according to preliminary data, after reaching 10,422 in July. The hybrid SUV Li One, the automaker’s only vehicle until this week, saw a sudden drop in demand. Li Auto says the more luxurious L9, another hybrid SUV, is cannibalizing sales. L9 deliveries began on Tuesday, with Li Auto predicting 10,000 L9 deliveries in September.
LI shares were down 0.1% at 28.77 on Wednesday, hitting 200-day resistance again.
XPeng delivered 11,524 vehicles in July. Production capacity has increased, but the range is becoming obsolete. The G9 SUV is due to begin deliveries in the fourth quarter to replace the aging G3.
Shares of XPeng rose 1.4% on Wednesday to 18.52 after hitting a 22-month low on Tuesday.
Meanwhile, BYD is likely to report August sales on Friday or Saturday. July sales of electric cars and plug-in hybrids rose 222 percent from a year earlier to 162,350. There are indications that BYD will set a new record in August.
In September, BYD will begin shipping the Seal sedan, a rival to the Tesla Model 3, starting at $10,000 less. In the next few days, BYD will start shipping the Atto 3 in Australia, part of a massive international expansion that will cover much of Europe.
On Monday, BYD reported first-half profit tripled from a year earlier, with sales up 60%. That sent shares modestly higher.
But BYD shares fell 7.8% on Tuesday, followed by a 4.35% loss to 30.75 on Wednesday. Shares of the electric vehicle and battery giant fell below its 200-day moving average after hitting a record high of 43.61 on June 28.
The catalyst? Warren Buffett Berkshire Hathaway (BRKB) said on Aug. 30 that it sold 1.33 million H-shares on Aug. 24 in Hong Kong, less than 1% of the large stake in BYD shares. Berkshire still owns just under 8% of BYD, but there are concerns it will continue to sell shares.
Tesla doesn’t break sales in China, but industry data shows local sales topped 30,000 in August. This excludes exports to Europe and elsewhere. More complete industry data for Tesla will come later in September.
The wait time for the base Model Y in China has been reduced to 1-4 weeks, according to Tesla’s website. Tesla Shanghai just got a big increase in capacity, but is demand keeping pace? Li Auto and Xpeng have shown the importance of new or refurbished EVs in China, and the two Tesla vehicles are no longer fresh.
Tesla shares fell 0.75% to 275.61 on Wednesday. Shares are holding above the 50-day line, but falling off the 200-day and 21-day moving averages.
Tesla Vs. BYD: Which EV giant is the better buy?
Market Rally Analysis
The stock market rally isn’t showing much of a fight. The major indexes rose on Wednesday morning, but quickly hit the wall at the 50-day moving average. They retreated, eventually closing at session lows.
The Russell 2000 and S&P 400 MidCap retreated slightly above their 50-day line, although they finished slightly below their 10-week averages.
Energy plays rebounded somewhat, particularly natural gas stocks, after some sharp losses on Tuesday.
The Nasdaq’s return above the 50-day line is important, but it certainly won’t be a clear-cut signal for the bulls. On the other hand, it won’t take a big drop to push the market’s faltering rally into a correction.
Time the Market with IBD’s ETF Market Strategy
What should we do now
The market rally remains under pressure for now, but weakness is evident. Investors should be looking for profit and loss reduction rather than adding exposure.
Work on your watch lists. Keep looking for possible setups, but be sure to keep an eye on quality stocks with high relative strength, even if the charts are not yet mature. But stocks can perform better in a weak market until they suddenly falter. And relative winners can still be absolute losers.
Read it The big picture every day to stay in sync with 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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