Dow Jones futures fell early Monday, along with S&P 500 futures and Nasdaq futures, with China crackdowns on Covid and tech firms in focus. The Twitter saga seems headed for court after Elon Musk CEO moved to end his takeover.
The stock market rally showed strength last week, with the Nasdaq leading the way while more quality stocks flashed buy signals. The tech-heavy composite finished Friday around its 10-week moving average and 50-day line, where it's struggled multiple times this year. The major indexes decisively clearing these key levels would be a positive step, though the market rally would still face numerous challenges, from technical resistance to the start of earnings season. Conversely, a sell-off from current levels would be bearish signal.
Dow Jones Futures Today
Dow Jones futures lost 0.5% vs. fair value. S&P 500 futures sank 0.7%. Nasdaq 100 futures fell 0.85%.
Crude oil prices declined 2.5%. Copper futures fell more than 1%.
The 10-year Treasury yield fell 5 basis points to 3.05%, while the two-year yield dipped 3 basis points to 3.07%.
Hong Kong's Hang Seng sank 2.8% after China regulators fined Alibaba, Tencent, SoftBank and several other companies for failing to disclose certain takeovers. The 500,000 yuan ($74,000) fines are nominal, but could unnerve investors.
Meanwhile, Macau has shut casinos and most other businesses in a bid to stop Covid spread.
Macau-focused casinos and U.S.-listed Chinese stocks were notable losers early Monday.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Elon Musk-Twitter Deal Saga
Late Friday, Tesla CEO Elon Musk informed Twitter that he want to terminate the $44 billion, $54.20-a-share deal. Musk's lawyers argued that Twitter has "not complied with its contractual obligations."
Twitter's board said it's confident in the deal and intends to close the transaction. The company has hired merger law specialist Wachtell, Lipton, Rosen & Katz LLP as it gets ready to file suit, perhaps early this week, to make Musk honor the signed deal. A legal battle in Delaware's Court of Chancery could take place over the next several months.
Most legal analysts have said Musk has a weak case for exiting the deal. He could be forced to close the deal or pay a substantial sum — more than the $1 billion breakup fee — to walk away.
It's a big turnaround from April, when Musk belatedly disclosed a sizeable "passive" TWTR stock stake and quickly moved on a takeover deal, claiming he could vastly expand growth and promote free speech.
Twitter stock sank 6% early Monday, signaling the lowest levels since mid-March. Shares sank 5.1% to 36.81 on Friday following a Washington Post article that the deal was in trouble.
TSLA stock fell slightly in premarket trade.
Meanwhile, Musk backing away from Twitter could be good news for former President Trump's struggling Truth Social. Digital World Acquisition Corp., a SPAC merger partner for Truth Social's parent, surged 15% Monday morning, but that's after spiking 30% Friday night.
Stocks Making Bullish Moves
McKesson, UnitedHealth, Centene, Lantheus, Northrop Grumman, Alibaba, SolarEdge Technologies, Fortinet and Tesla are nine stocks in or near buy zones, ranging from traditional breakouts to early buy points to highly aggressive entries.
Northrop, UnitedHealth and LNTH stock are on IBD Leaderboard. Centene and McKesson are on SwingTrader. FTNT stock is on IBD Long-Term Leaders. UNH stock is on the IBD 50. MCK stock and Fortinet are on the IBD Big Cap 20. McKesson was Friday's IBD Stock Of The Day.
The video embedded in the article discussed the state of the market and analyzed three stocks making bullish moves: McKesson, Lantheus and Tesla.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally bounced back in the latest week, with solid to strong gains on the indexes.
The Dow Jones Industrial Average climbed 0.8% in last week's stock market trading. The S&P 500 index advanced 1.9%. The Nasdaq composite leapt 4.6%. The small-cap Russell 2000 gained 2.4%.
The 10-year Treasury yield gained 13 basis points to 3.1%, after tumbling to 2.75% intraday Wednesday. The 2-year yield climbed to 3.1% as well, after being above the 10-year rate for a few days.
U.S. crude oil futures fell more than 3% in the past week to $104.79 a barrel, but after tumbling well below $100 on Wednesday.
Friday's June jobs report was stronger than expected, though employment tends to be a lagging indicator. The Atlanta Fed's GDP forecast tool now sees a 1.2% annualized decline in the second quarter, vs. last week's -2.1%.
The CME's FedWatch tool still sees a 75 basis point rate hike later this month and 50 basis points in September. But it sees a half-point move as likely for the November meeting, a shift from expectations of a quarter-point move in the past few days.
Wednesday's June consumer price index is expected to show inflation rising even higher, to 8.8% from May's 8.6%. Gasoline prices are coming down, but they peaked on June 14 and only fell slightly for the rest of the month. While core inflation likely cooled a little last month and headline inflation seems set to decline after June, but another supersized 75-basis-point-rate hike seems locked in for the late July meeting.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF climbed 1.6% last week, while the Innovator IBD Breakout Opportunities ETF advanced 1.5%. The iShares Expanded Tech-Software Sector ETF popped 4.4%, with FTNT stock part of the ETF. The VanEck Vectors Semiconductor ETF ran up 6.45%.
SPDR S&P Metals & Mining ETF slid 1.5%, extending a weekly losing streak. The Global X U.S. Infrastructure Development ETF rose 0.7%. U.S. Global Jets ETF maintained altitude, closing flat. SPDR S&P Homebuilders ETF rallied 3.2%. The Energy Select SPDR ETF slumped 2.25% and the Financial Select SPDR ETF edged up 0.6%. The Health Care Select Sector SPDR Fund climbed 0.8%, with UNH stock a major holding.
Reflecting more-speculative story stocks, ARK Innovation ETF jumped 13.7% last week, vaulting back above its 50-day line. ARK Genomics ETF surged 14.4%, vaulting from the 50-day line. Tesla stock is a major holding across Ark Invest's ETFs.
Five Best Chinese Stocks To Watch Now
Stocks In Buy Zones
McKesson stock rose 3.1% on Friday to 331.26 flashing multiple early buy signals. Shares rebounded from their 50-day line, broke a downward-sloping trendline, and cleared short-term resistance at 330.16. MCK stock has a flat base with 340.04 buy point, according to MarketSmith analysis. The relative strength line, the blue line in the charts provided, has been hitting new highs in recent days.
UnitedHealth stock edged up 0.8% on Friday to 518.63. Intraday, the Dow Jones giant got to 528.37, clearing a 518.80 handle buy point from either a cup or double-bottom base, but closed just below the entry. On Tuesday, UNH stock tested its 50-day line intraday as a mini-shakeout. Several health insurers are in or near buy zones, including Centene, a positive sign. But UnitedHealth earnings are due on Friday, July 15.
Centene stock climbed 3.2% to 88.01 on Friday, moving above an 87.44 double-bottom buy point. Like UnitedHealth, CNC stock tested its 50-day line on Tuesday. The RS line for Centene is at a new high. Centene earnings aren't due until July 26, but UnitedHealth results could affect CNC stock on Friday.
Lantheus stock jumped 7.4% on Friday to 67.79, rebounding back above its 50-day line, also breaking a trendline and topping a short-term high. LNTH stock is consolidating after a huge run from late February to early June, but needs another week to become a proper base.
Northrop stock, after rebounding back into buy range in the prior week, fell 1.2% in the latest week to 480.43, but rebounded from Tuesday's 50-day line test. NOC stock is actionable from the 50-day line and an old, 477.36 buy point. Northrop stock now has a new flat base with a 492.40 buy point.
Alibaba stock broke above the 200-day line and broke out from a bottoming base with resistance just above 121. For the week, BABA stock rose 4.2% to 120.90 but dipped 1.2% on Friday to close just below those key levels. On Thursday, BABA stock Ideally, bottoming bases will form above or largely above the 200-day line, but many stocks are showing similar patterns.
Several Chinese internet stocks are showing improving action. But Alibaba and other China stocks retreated Monday on Beijing's latest crackdowns on tech firms.
SolarEdge stock rose leapt 6.75% in the latest week to 295.11, rebounding from the 50-day line on Tuesday and reclaiming the 200-day line on Friday. SEDG stock is working on a 314.62 buy point from a cup-with-handle base. But it's trading right on a trendline from the top of the handle or the top of the three-month base.
Fortinet stock ran up 9.3% this past week to 62.70, reclaiming its 50-day line and finishing just above its 200-day line. That offers a buying opportunity for FTNT stock as an early entry or as a Long-Term Leader. However, volume was light all week. While Fortinet stock is well off its peak, the RS line is at a new high, something few software plays can claim.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
Tesla stock spiked 10.3% in the short week to 752.9, back above its 50-day line for the first time in two months. TSLA stock didn't undercut its May lows last month, so arguably it's trying to clear a too-short bottoming base.
Tesla stock rose 1% Monday morning following news that Musk is seeking to terminate the Twitter deal, which might have required more TSLA sales or collateral.
An extremely aggressive trader could try to take a position here, but it would not be a typical IBD buy, even as an early entry. Tesla stock has a long way before reaching its 200-day line, with all-time highs well above that.
In contrast, China EV rivals BYD and Li Auto are in buy zones now, trading just below 52-week highs.
Tesla could open its Supercharger network in the U.S. soon, according to a White House memo. Tesla earnings are due July 20.
Market Rally Analysis
The stock market rally, which was reeling a week earlier, bounced back this past week after rebounding from Tuesday intraday lows. The Nasdaq moved up to its 50-day and 10-week lines as well as its late June highs, closing fractionally above its 10-week average.
The 10-week line has been a major resistance area for the tech-heavy index.
On Friday morning, the major averages retreated solidly following a strong jobs report that pushed Treasury yields higher. But they rallied back to close little changed.
The S&P 500, Dow Jones and Russell 2000 have not yet reached the 50-day/10-week line area, but did reclaim their 21-day moving averages.
However, last week's gains came on light volume, suggesting big institutions aren't making big bets on this market rally yet.
The market rally pausing around current levels for a few days or weeks wouldn't be terrible. That would let more bases form and allow major averages catch up to leading stocks or falling down to hard-hit names trying to bounce back.
However, more stocks are setting up buy points of various quality. The medical sector still dominates, accounting for four of the nine stocks highlighted here. But there are other sectors showing some promise.
Remember, financial markets are still weighing inflation, recession and Fed rate hike risks. Stocks, bonds and commodities are prone to be violent swings.
Time The Market With IBD's ETF Market Strategy
What To Do Now
The market rally remains "under pressure," but the major indexes are looking much better than a week ago, and are on the cusp of taking a big positive step. Leading stocks are growing more numerous and acting well.
All of this remains tentative. One sharp sell-off, especially from current levels, would be a bearish signal. A few bad days would turn recent buys into clear losses, with the indexes heading toward lows once again.
So, build up your exposure slowly as the market and your positions work. You might still take some partial profits on winners to lock in gains. Be ready to cut losses quickly.
Work hard this week on your watchlists. Build a broad list, while paying special attention to a select group of potential buys in the coming days.
Pay special attention to earnings season, which will start picking up this coming week. Amid high inflation, a strong dollar and slowing growth, expect many companies to miss or issue grim guidance. So pay attention to when your holdings report earnings, or when key rivals are on tap.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
