Debt Futures: The market rally faces this risk; Musk, Buffett make dealsDow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. Warren Buffett’s Occidental Petroleum stock, Elon Musk’s latest move against Twitter and three top software games are in focus.
The stock market rally looks set to continue this week, with the S&P 500 and Nasdaq composite back above their 50-day moving averages and many leading stocks flashing buy signals. However, the 10-year Treasury yield continues to move toward long-term highs, a potential headwind for the market’s rally. The consumer price index for August is due to be released early on Tuesday.
Warren Buffett loaded up on more Occidental Petroleum (OXY) shares, with Berkshire Hathaway (BRKB), revealing a 26.8% stake in OXY stock late Friday. Shares of OXY rose late on Friday after paring a recent breakout last week.
Tesla (TSLA) CEO Elon Musk presented a new argument for exiting the $44 billion acquisition of Twitter. This week Twitter (TWTR) shareholders will vote on Musk’s offer. Shares of TWTR fell slightly late Friday, but after big gains during the holiday-shortened week. Tesla shares jumped, returning above key levels and perhaps suggesting an aggressive entry.
PANW shares included IBD ranking, while PCTY shares are on the ranking’s watch list. CDNS backup is included IBD long-term leaders. TSLA stock is at IBD 50. Cadence Design Systems and OXY stock are at IBD Big Cap 20.
Dow Jones futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Stock market rallies
The Dow Jones Industrial Average rose 2.7% last week Exchange Trading. The S&P 500 jumped 3.65%. The Nasdaq Composite jumped 4.1%. The small-cap Russell 2000 rose 4%.
The Dow Jones closed just below its 50-day moving average, while the S&P 500, Nasdaq composite and Russell 2000 cleared that key level on Friday.
There is some room to work before the major indexes face the 200-day moving average. So the leading stocks could make some decent gains during this period.
However, it won’t take much of a pullback to see all the major indexes back below their 50-day lines or last week’s lows.
Yield on government bonds
One big concern is government bond yields. The yield on the 10-year Treasury note rose 13 basis points to 3.32% last week. The benchmark index rose for six straight weeks, returning to an 11-year high of 3.48% set on June 16.
The market’s rally has revived even as government bond yields continue to rise, but there’s no doubt that stocks have struggled in 2022 as yields rise. Part of that reflected higher yields fueling demand for the dollar, which eased Friday from long-term highs.
On Tuesday, the Labor Department will release its consumer price index for August. Analysts had expected consumer prices to fall 0.1 percent from the previous month, after being flat in July, with falling gasoline prices the main driver. Core CPI inflation should cool again to 8% from July’s 8.5%. Core consumer prices are expected to rise 0.3% for a second month. Core inflation could rise to 6.1% from 5.9% in July, fueled by fast-rising rents.
The moderate inflation report is unlikely to prevent the Federal Reserve from raising interest rates by 75 basis points for a third straight meeting on September 21. But it could reinforce expectations for a slower pace of future rate hikes. On the other hand, hot inflation reporting can lead to a spike in government bond yields and expectations of interest rate hikes.
Elon Musk’s new reason to end the Twitter deal
Tesla CEO Elon Musk gave an additional reason Friday night to close the deal to take over Twitter for $44 billion. He argued that compensating whistleblower Peter “Mudge” Zatko was outside the ordinary course of business.
It’s unclear whether that claim will gain any traction in Delaware’s Chancery Court, with the five-day Musk-Twitter trial set to begin Oct. 17.
Shares of Twitter were down 1.3% late Friday. But that’s after TWTR shares jumped 9.2% to 42.19 last week, though that’s still well below the $54.20 Musk agreed to pay.
On Tuesday, Twitter shareholders will vote on Elon Musk’s offer.
Tesla shares jumped 10.9% last week to 299.68, bouncing off its 50-day line and reclaiming its 200-day line. The EV giant’s stock is likely off to an aggressive start. Investors may decide to wait for TSLA shares to move above 300 or the August 16 near-term high of 314.64.
Warren Buffett buys more shares of Occidental Petroleum
Warren Buffett’s Berkshire Hathaway upped the ante Occidental Petroleum (OXY) share to 26.8% from 20.2%. Berkshire disclosed this in an SEC filing Friday night.
Shares of OXY were up modestly late on Friday.
The Federal Energy Regulatory Commission has given Berkshire the right to buy up to 50 percent of Occidental Petroleum. That news on Aug. 19 sent Occidental shares soaring above the 66.26 buy point, reaching 77.13. But the stock broke through that breakout late last week. Shares of OXY rose 1.55% to 65.61 on Friday, finding support at its 50-day line.
Software stocks to watch
Shares of CDNS rose 3.9% last week to 174.68, retracing its 50-day moving average on Friday but still just below the 10-week line. Shares of the chip design software maker rallied strongly from mid-June to mid-August, clearing early records above the 200-day line. But Cadence Design shares fell after hitting 194.97 on Aug. 16. A move above the 21-day line this week could offer a buying opportunity from the 50-day moving average.
Shares of Palo Alto rose 4.7% to 564.77 last week, finding support at the 50-day line and reclaiming its 200-day line. PANW shares are trading at 578.89 cup base with handle point of purchase, acc MarketSmith analysis. But the cybersecurity firm broke the bearish trend in the handle on Friday, making it ready for action now.
Shares of Paylocity jumped 9.6% last week, rebounding from just above its 10-week line and reclaiming its 21-day line. It is now potentially applicable. Investors could treat the recent consolidation — following the earnings gap — as a handle on a deep 10-month base. In another week, this handle could become a suitable base for PCTY stocks. Anyway, the official one point of purchase is 276.98.
For a detailed analysis of the stock market rally and what investors should be doing now, see this before Column Stock Market Today.
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