Dow Jones futures open on Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock rally suffered significant losses for the second week in a row, with Fed chief Jerome Powell Friday saying more “pain” is needed to push inflation back.
Major indices sold off Friday and moved back to 50-day moving averages. Several stocks that flashed buy signals on Thursday, such as Axcelis Technologies (ACLS), tumbled back Friday. Some, like Steel dynamics (STLD), no.
Investors should be careful about adding exposure as the market continues to retreat. They may need to step back if they’ve become too vulnerable or bought extensive stocks in the past few days.
However, the current “pain” to the market rally could create opportunities for big gains, although it is unclear when. A number of stocks are forming handles, while others are working on bases or may be headed for bullish pullbacks.
Apple (AAPL) and Arista Networks (ANET) have forged handles in the recent pullback. Apple stocks and Arista are no longer as expansive from the main moving averages. Tesla shares, meanwhile, are trading tightly around some key levels.
ACLS stocks and Steel Dynamics are on IBD Leaderboard. STLD shares are also listed on SwingTrader. ANET stock and Tesla (TSLA) are on the IBD 50 list. Arista and STLD stocks are on the Big Cap 20. Arista Networks was Friday’s IBD stock of the day, with Apple stock and Steel Dynamics the picks for the previous two days.
Meanwhile, Chinese stocks: Pinduo duo (PDD), Baidu (BIDU), BYD (BYDDF), Nioz (NIO) and Li Auto (LI) take center stage over the next week with important news on tap. US-listed Chinese stocks rebounded, sometimes strongly, on Thursday after a report that a US-China control deal was close. The provisional agreement, which was confirmed on Friday, should put an end to fears of delisting.
PDD stocks and Baidu in particular have seen bullish action but gain early this week. Tesla EV rivals BYD, Nio and Li Auto need some work but are worth checking out.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
ETFs trading the Dow, S&P 500 and Nasdaq 100 fell modestly Friday night as selling pressure continued.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live
stock market rally
The stock market rally fell significantly last week with some positive action driven by a pullback on Monday and the sharp sell-off on Friday of Powell’s speech.
Powell’s short but not-so-sweet speech in Jackson Hole on Friday emphasized the lesson from the 1970s for policymakers not to be wary. The Fed chief said the US needs a “sustained period of below-trend growth”. That will mean some “pain” for households and businesses, he said, but the alternative is “much greater pain.”
In short, the Fed is going to raise interest rates significantly more and keep them there.
The Dow Jones Industrial Average lost 4.2% in last week’s trading. The S&P 500 index lost 4%. The Nasdaq composite lost 4.4%. The small cap Russell 2000 lost 3%.
The 10-year Treasury yield rose nearly 5 basis points to 3.035%, its fourth consecutive weekly gain.
US crude oil futures rose 2.9% last week to $93.06 a barrel.
One of the best ETFs was the Innovator IBD 50 ETF (FFTY) which rose 1.65% last week while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.2%. The iShares Expanded Tech-Software Sector ETF (IGV) lost 5.2%. The VanEck Vectors Semiconductor ETF (SMH) fell 5%.
SPDR S&P Metals & Mining ETF (XME) climbed 3.4% last week, with STLD stocks taking a notable position. The Global X US Infrastructure Development ETF (PAVE) fell 2.5%. The US Global Jets ETF (JETS) fell 2.1%. SPDR S&P Homebuilders ETF (XHB) fell 5.1%. The Energy Select SPDR ETF (XLE) climbed 4.3% and the Financial Select SPDR ETF (XLF) 3.6%. The Health Care Select Sector SPDR Fund (XLV) lost 4.2%
As a result of more speculative story stocks, ARK Innovation ETF (ARKK) fell 4.1% last week and ARK Genomics ETF (ARKG) rose 0.7%. Tesla stocks are a major holding in Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD and Nio stocks.
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Apple stock fell 4.6% last week to 163.62. Friday’s 3.8% loss pushed the iPhone giant below its 21-day moving average. AAPL shares now have a buy point of 176.25 in base dating back to the start of the year. The relative strength line, the blue line in the charts, has reached new highs. On August 17, as Apple shares hit a recent high, shares closed 16.1% above the 50-day line and 8.9% above the 200-day line. They are now just 1.7% and 5.9% above those respective levels.
Arista stock fell 5.4% last week to 123.03 to just below its 21-day moving average. Stocks now have a buy point of 132.97 in a double bottom base. ANET shares are just 2.7% above the 200-day line versus 10.5% on Aug. 18. The RS line hit an all-time high on a weekly chart.
Arista’s earnings and revenue growth has accelerated over the past three quarters, reaching 59% and 49% respectively in the second quarter.
Tesla shares fell 2.9% to 288.09 in the past week, closing slightly below the 21-day line after several attempts to break and stay above the 200-day line. A decisive recapture of the 200-day line, perhaps above 314.64, would provide an aggressive entry. But make no mistake, TSLA stocks would still be low in the base, far from the official 402.73 buy point.
Tesla started selling a new, lower-end Model Y to Europe on Friday, with a shorter range but a much cheaper price. Prices vary considerably from country to country, undercutting the Model 3 in some countries.
The coming months will be interesting for Tesla. Production capacity has increased significantly for its no longer fresh lineup, as rivals – including BYD and Nio – introduce new models and ramp up the EV and overall automatic output.
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Pinduoduo will report earnings ahead of Monday’s opening, while Baidu is off tap early on Tuesday. Both PDD and Baidu stocks recovered above their 50-day and 200-day lines on Thursday, offering early entries. Both gave up some of that gain on Friday, but rose sharply for the week.
PDD stocks are at an all-time low with an official buy of 68.81.
Baidu stocks are in a 10-month consolidation with a buy point of 182.70. But the stocks are around a long downward trendline. Investors could also see the move as a base since the end of June, with a buy point of 156.87.
BYD is likely to report results next week after delivering strong preliminary results for the first half in mid-July. In the coming days, the Chinese EV and battery giant should begin deliveries of Atto 3 in Australia and delivery of Seal sedans in China.
Nio will launch the ES7 SUV on Sunday, followed by the ET7 sedan a month later. Li Auto is expected to start shipping its luxury L9 hybrid SUV before the end of the month.
Li Auto, Nio and xpeng (XPEV) reports August deliveries on Thursday, Sept. 1, with BYD a day or two later.
BYD stocks and LI stocks find support around their 200-day lines and are pulling back significantly after soaring to highs in June.
Nio shares are just below the 50-day line within a low that is below 200 days. A strong move above the 50-day line would also break a downtrend in the base, providing an early entry. But the still down 200-day line would soon be looming as resistance.
Market rally analysis
The stock market rally showed some encouraging action during the week, especially on Thursday. But with Monday’s pullback and the Powell-led sell-off on Friday, major indices sold hard for the week.
Powell’s aggressive message was not a surprise, but the market did not react well. The Dow Jones, S&P 500 and Nasdaq composite slipped below their 21-day moving averages and are now not that far from their 50-day lines – as well as some big round numbers for each of the major indices.
The Russell 2000, which started moving back to its 200-day line, also fell hard on Friday.
Many of the leading stocks that rose higher, especially Thursday, fell back on Friday. ACLS stock, which jumped nearly 13% to break out on Thursday, wiped out all of the gains on Friday. On the upside, Steel Dynamics was up 0.1% on Friday, in a buy zone after a 6.6% jump on Thursday.
Since the indices bottomed out in June, there has been concern that we are in a bear market rally. We still don’t know the answer, but it sure is “bearable” to watch.
Commodity stocks are doing relatively well, including energy, fertilizer and steel producers.
The SMH and IGV ETFs are nearly back on their 50-day line as chips and software ended the week poorly. ARKK is below the 50-day limit.
Some former highly regarded tech leaders may be making big new runs, but most of them probably won’t. After bottom fishing surges of 50%, 100% or more from bear market lows, many have been sold hard in recent weeks.
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What to do now
When the Nasdaq dips close to 4%, the previous day’s breakouts are likely to turn difficult. And that’s what happened to many of Thursday’s purchases, although they were able to bounce back.
But investors may need to reduce their exposure, especially if they have increased in recent days and are now sitting on some losses.
If the market shows any indication that it is ready to flip higher, new buying opportunities will arise, with Apple, Arista and Tesla among the possibilities. But investors should still be cautious, bearing in mind the risks of a quick head turn or resistance on the 200-day line.
Meanwhile, there is a risk that the market will retreat to the 50-day line, or worse. Depending on what followed, such a move could produce a number of setups or a challenging period.
So get your screens running this week and rework your watchlists. Keep your exposure modest, at least until the major indices move above their 200-day lines. Even if you’re looking for new purchases, be prepared to scale more aggressively.
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