Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered significant losses for a second week in a row, with Federal Reserve Chairman Jerome Powell saying on Friday that more “pain” was needed to bring down inflation.
The major indexes sold off on Friday, retracing to the 50-day moving averages. Several stocks that flashed buy signals on Thursday, such as Axcelis Technologies (ACLS), fell back on Friday. Some, such as Steel dynamics (STLD), I was not.
Investors should be cautious about adding exposure while the market is still retreating. They may need to pull back if they have become overexposed or bought extended shares in recent days.
However, the current “pain” for the market rally could be creating opportunities for big gains, but when is unclear. A number of stocks are forming handles, while others are working on bases or possible retracements to bullish pullbacks.
An apple (AAPL) and Arista Networks (NETWORK) have forged handles in the recent recall. Shares of Apple and Arista are no longer as extended from key moving averages. Tesla shares, meanwhile, are trading tight around some key levels.
ACLS and Steel Dynamics shares are included IBD ranking. STLD shares are also included SwingTrader. ANET shares and Tesla (TSLA) are on IBD 50 list. Shares of Arista and STLD are at Big hat 20. Arista Networks was Friday IBD Stock of the Daywith Apple and Steel Dynamics stocks being the picks for the previous two days.
Meanwhile, Chinese stocks Pinduoduo (PDD), Baidu (WILL BE), BYD (BYDDF), Nio (NIO) and Li Auto (LI) are in focus in the coming week with key news. U.S.-listed Chinese stocks jumped Thursday, sometimes sharply, on a report that a U.S.-China audit deal was close. The tentative agreement, confirmed on Friday, should end fears of delisting.
Shares of PDD and Baidu in particular showed bullish action, but have gains early next week. Tesla EV rivals BYD, Nio and Li Auto need some work, but are worth a look.
Dow Jones futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
ETFs trading in the Dow, S&P 500 and Nasdaq 100 were modestly lower on Friday evening as selling pressure continued.
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 faltered last week with some positive action bookended by a pullback on Monday and a sharp selloff on Friday following Powell’s speech.
Powell’s short but not-so-sweet speech in Jackson Hole on Friday underscored the lesson of the 1970s for politicians not to let their guard down too quickly. The Fed chief said the US needs a “prolonged period of below-trend growth.” That would mean some “pain” for households and businesses, he said, but the alternative was “far more pain.”
Bottom line: The Fed will raise interest rates significantly more and keep them there.
The Dow Jones Industrial Average fell 4.2% last week Exchange Trading. The S&P 500 lost 4%. The Nasdaq Composite gave up 4.4%. The small-cap Russell 2000 lost 3%.
The yield on the 10-year Treasury rose nearly 5 basis points to 3.035%, the fourth straight weekly increase.
U.S. crude futures rose 2.9 percent to $93.06 a barrel last week.
Avg the best ETFsInnovator IBD 50 ETF (FFTY) rose 1.65% last week, while the Innovator IBD Breakout Opportunities ETF (BOOTH) lost 2.2%. iShares Expanded Tech-Software Sector ETF (IGV) lost 5.2%. VanEck Vectors Semiconductor ETF (SMH) fell by 5%.
SPDR S&P Metals & Mining ETF (XME) rose 3.4% last week, with STLD shares a standout. Global X US Infrastructure Development ETF (PAVING) declined by 2.5%. US Global Jets ETF (STREAMS) fell by 2.1%. SPDR S&P Homebuilders ETF (XHB) fell by 5.1%. Energy Select SPDR ETF (XLE) rose 4.3%, and the Financial Select SPDR ETF (XLF) 3.6%. Select Healthcare Sector SPDR Fund (XLV) lost 4.2%
Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) tumbled 4.1% last week, and the ARK Genomics ETF (ARKG) rose by 0.7%. Tesla stock is a major holding in Ark Invest’s ETF. Cathie Wood’s Ark also owns some shares of BYD and Nio.
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Apple shares fell 4.6% last week to 163.62. Friday’s 3.8% loss pushed the iPhone giant below its 21-day moving average. AAPL stock now has a 176.25 buy point in its base, going back to the start of the year. The line of relative strength, the blue line in the charts provided, reaches new highs. On August 17, when Apple shares hit a recent high, the stock closed 16.1% above its 50-day line and 8.9% above its 200-day line. They are now only 1.7% and 5.9% above their respective levels.
Arista shares sank 5.4% to 123.03 last week, just below its 21-day moving average. The stock now has a 132.97 buy point in a double bottom base. ANET shares are just 2.7% above their 200-day line, versus 10.5% on August 18. The RS line hit a record high on the weekly chart.
Arista’s earnings and sales have accelerated over the past three quarters, up 59% and 49% respectively in Q2.
Tesla shares fell 2.9% last week to 288.09, closing just below its 21-day line after trying to reach and stay above its 200-day line several times. A decisive retracement of the 200-day line, perhaps above 314.64, would suggest an aggressive entry. But make no mistake, TSLA shares will still be fundamentally low, far from the official 402.73 buy point.
Tesla on Friday began selling a new lower-base Model Y in Europe, with shorter range but a much lower price, undercutting the Model 3 in some countries. The next few months will be interesting for Tesla.
Its production capacity has increased significantly for its no-longer-fresh lineup, while rivals – including BYD and Nio – are introducing new models and increasing EV and overall car output.
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Pinduoduo will report pre-open earnings on Monday, while Baidu is active early on Tuesday. Both PDD and Baidu shares bounced above their 50-day and 200-day lines on Thursday, offering early entries. Both gave up some of those gains on Friday, but rallied sharply for the week.
PDD shares are in a bottom base with an official buy point of 68.81.
Baidu shares are in a 10-month consolidation with a buy point at 182.70. But the stock is in a long, downtrend. Also, investors could look at the action from late June as a base, with a buy point at 156.87.
BYD is likely to report earnings next week after delivering strong preliminary first-half results in mid-July. In the next few days, the Chinese electric car and battery giant is due to begin deliveries of the Atto 3 in Australia and begin deliveries of the Seal sedan in China.
Nio will launch the ES7 SUV on Sunday and the ET7 sedan will follow a month later. Li Auto is set to begin deliveries of its luxury L9 hybrid SUV before the end of the month.
Li Auto, Nio and Xpeng (XPEV) will report August deliveries on Thursday, September 1, with BYD a day or two later.
Shares of BYD and LI are finding support around their 200-day lines, retreating significantly after hitting highs in June.
Nio shares are just below its 50-day line within a bottom base that is below the 200-day. A strong move above the 50-day line would also include a break of an underlying downtrend, suggesting an early entry. But the still falling 200-day line will quickly emerge as resistance.
Market Rally Analysis
The stock market rally showed some encouraging action at times during the week, especially on Thursday. But with Monday’s pullback and Friday’s Powell-led selloff, the major indexes sold off hard for the week.
Powell’s hawkish announcement came as no surprise, but the market did not react well. The Dow Jones, S&P 500 and Nasdaq composite fell below their 21-day moving averages and are now not too far from their 50-day lines – as well as some big round numbers for each of the major indexes.
The Russell 2000, which was starting to move back toward its 200-day line, also fell heavily on Friday.
Many of the leading stocks that rose, especially on Thursday, fell on Friday. Shares of ACLS, which jumped nearly 13% Thursday to break even, erased all of Friday’s gains. On the positive side, Steel Dynamics rose 0.1% on Friday, in buy territory, after jumping 6.6% on Thursday.
Ever since the indexes bottomed out in June, there have been concerns that we are in a bear market rally. We don’t know the answer yet, but it certainly bears watching.
Commodity stocks are doing relatively well, including energy, fertilizers and steelmakers.
SMH and IGV ETFs almost returned to their 50-day lines as chips and software ended the week poorly. ARKK is below its 50-day line.
Some former highly regarded tech leaders may make big new runs, but most of them probably won’t. After bottom fishing rallies of 50%, 100% or more from the bottom of the bear market, many have sold off hard over the past few weeks.
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What should we do now
With the Nasdaq down nearly 4%, the previous day’s breakouts are likely to be difficult. And that’s what happened to many of Thursday’s buys, even though they could bounce back.
But investors may need to reduce exposure, especially if they have rallied in the past few days and are now on some losses.
If the market shows any indication that it’s ready to go higher, new buying opportunities will emerge, including Apple, Arista and Tesla. But investors should still be cautious given the risks of a quick falsification of the head or resistance at the 200-day line.
Meanwhile, there is a risk that the market will pull back to the 50-day line or worse. Depending on what followed, such a move could create a number of settings or a period of challenge.
So put away your screens this week and revise your watch lists. Keep your exposure moderate, at least until the major indices move above their 200-day lines. Even as you scan for new purchases, be prepared to scale more aggressively.
Read it The big picture every day to stay in sync with market direction and leading stocks and sectors.
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