Dow Jones futures rose modestly Monday morning, along with S&P 500 futures and Nasdaq futures, helped by a falling dollar and Treasury yields. Warren Buffett stock Occidental Petroleum, Elon Musk's latest move vs. Twitter and three top software plays are in focus.
The stock market rally looks to continue momentum 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 march toward long-term highs, a potential headwind for the market rally. The August consumer price index is due out early Tuesday.
Warren Buffett has loaded up on more Occidental Petroleum shares, with Berkshire Hathaway disclosing a 26.8% OXY stock stake late Friday. OXY stock rose late Friday after round-tripping a recent breakout last week.
Tesla CEO Elon Musk has made a new argument for getting out of a $44 billion Twitter takeover. This week Twitter shareholders will vote on Musk's offer. TWTR stock fell slightly late Friday, but after big gains during the holiday-shortened week. Tesla stock jumped, back above key levels and arguably offering an aggressive entry.
The Biden administration in October intends to widen curbs on semiconductor shipments to China related to artificial intelligence and chipmaking tools, Reuters reported Sunday night, citing several sources. That will codify bans on certain Nvidia and AMD chips. Both companies late last month confirmed getting Commerce Department letters barring those shipments.
Meanwhile, Cadence Design Systems, Palo Alto Networks and Paylocity are three software stocks showing strength, setting up or flashing buy signals.
PANW stock is on IBD Leaderboard, while PCTY stock is on the Leaderboard watchlist. CDNS stock is on IBD Long-Term Leaders. TSLA stock is on the IBD 50. Cadence Design Systems and OXY stock are on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures advanced 0.6% and Nasdaq 100 futures climbed 0.7%.
Even a small gain Monday would lift the Dow Jones above the 50-day and 21-day moving averages. The Nasdaq finished Friday just one point below its 21-day line.
European Central Bank officials continued to signal further aggressive rate hikes following last week's 75-basis-point ECB move. The euro is rallying vs. the dollar, providing a lift to gold, Bitcoin and to Dow futures.
The 10-year Treasury yield fell 4 basis points to 3.28%.
Crude oil futures rose a fraction. U.S. natural gas prices turned slightly lower. European natgas prices were falling again.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The Dow Jones Industrial Average climbed 2.7% in last week's stock market trading. The S&P 500 index jumped 3.65%. The Nasdaq composite leapt 4.1%. The small-cap Russell 2000 rallied 4%.
The Dow Jones closed just below its 50-day moving average, while the S&P 500, Nasdaq composite and Russell 2000 all cleared that key level on Friday.
There is some room to run before the major indexes face the 200-day moving average. So leading stocks could made some decent gains over that span.
However, it wouldn't take much of a retreat to see all the major indexes back below their 50-day lines or last week's lows.
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Treasury Yields
One big concern is Treasury yields. The 10-year Treasury yield ran up 13 basis points to 3.32% last week. The benchmark index has rallied for six straight weeks, moving back toward to the 11-year-high 3.48% set on June 16.
The market rally revived despite Treasury yields continuing to move higher, but there's no question that stocks have struggled in 2022 as yields trend higher. Part of that reflects higher yields pushing up demand for the dollar, which did ease Friday from long-term highs.
On Tuesday, the Labor Department will release its August consumer price index. Analysts expected consumer prices to dip 0.1% vs. the prior month after being flat in July, with tumbling gasoline prices a major factor. The headline CPI inflation rate 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 may pick up to 6.1% from July's 5.9%, fueled by fast-rising rents.
A tame inflation report likely wouldn't deter the Federal Reserve from raising interest rates by 75 basis points for a third straight meeting on Sept. 21. But it could reinforce expectations of a slower pace of future rate hikes. On the other hand, a hot inflation reading could send Treasury yields and rate-hike expectations soaring.
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Elon Musk's New Reason To Terminate Twitter Deal
Tesla CEO Elon Musk filed an additional reason Friday night for terminating scrapping the $44 billion Twitter takeover deal. He's arguing that a severance payment to whistleblower Peiter "Mudge" Zatko was outside the normal course of business.
It's unclear if that claim will gain any traction before Delaware's Chancery Court, with the five-day Musk-Twitter trial set to start Oct. 17.
Twitter stock fell 1% early Monday. But that's after TWTR stock jumped 9.2% to 42.19 last week, though that's still well below the $54.20 that Musk agreed to pay.
On Tuesday, Twitter shareholders will vote on Elon Musk's offer.
Tesla stock surged 10.9% last week to 299.68, rebounding from its 50-day line and reclaiming its 200-day line. Shares of the EV giant arguably are flashing an aggressive entry. Investors could decide to wait for TSLA stock to move above 300 or the Aug. 16 short-term high of 314.64.
Elon Musk tweeted Sunday that the latest version of FSD Beta was rolling out.
Shares nudged higher before the open, above 300.
Warren Buffett Buys More Occidental Petroleum Stock
Warren Buffett's Berkshire Hathaway has raised its Occidental Petroleum stake to 26.8% from 20.2%. Berkshire disclosed that in an SEC filing Friday night.
OXY stock rose nearly 2% early Monday.
The Federal Energy Regulatory Commission has given Berkshire the right to buy up to 50% of Occidental Petroleum. That Aug. 19 news sent Occidental stock soaring past a 66.26 buy point, running to 77.13. But shares round-tripped that breakout by late last week. OXY stock did rise 1.55% to 65.61 on Friday, finding support at its 50-day line.
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Software Stocks To Watch
CDNS stock rose 3.9% last week to 174.68, reclaiming its 50-day moving average on Friday but still just below its 10-week line. Shares of the chip design software maker ran up strongly from mid-June to mid-August, clearing early entries above the 200-day line. But Cadence Design stock has pulled back since hitting 194.97 on Aug. 16. A move above the 21-day line this week could offer a buying opportunity from the 50-day average.
Palo Alto stock climbed 4.7% to 564.77 last week, finding support at the 50-day line and reclaiming its 200-day line. PANW stock is working on a 578.89 cup-with-handle base buy point, according to MarketSmith analysis. But the cybersecurity firm broke a downtrend in the handle on Friday, making it actionable now.
Paylocity stock leapt 9.6% last week, rebounding from just above its 10-week line and reclaiming its 21-day line. It's potentially actionable now. Investors could treat the recent consolidation — following an earnings gap-up — as a handle in a deep, 10-month base. In another week, that handle could turn into a proper base for PCTY stock. Either way, the official buy point is 276.98.
For detailed stock market rally analysis and what investors should be doing now, check out this prior Stock Market Today column.
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