Dow Jones futures fell solidly Monday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered significant weekly losses again last week, with Federal Reserve chief Jerome Powell saying Friday that more "pain" is needed to bring down inflation.
The major indexes sold off Friday, moving back toward 50-day moving averages. Several stocks that flashed buy signals Thursday, such as Axcelis Technologies, tumbled back on Friday. Some, such as Steel Dynamics, did not.
Investors should be cautious about adding exposure with the market still retreating. They may need to step back if they became too exposed or bought extended stocks in recent days.
However, the current "pain" for the market rally could be setting up opportunities for big gains, though when is unclear. A number of stocks are forming handles, while others are working on bases or possibly tracking toward bullish pullbacks.
Apple and Arista Networks have forged handles in the recent pullback. Apple stock and Arista are no longer quite so extended from key moving averages. Tesla stock, meanwhile, is trading tightly around some key levels.
ACLS stock and Steel Dynamics are on IBD Leaderboard. STLD stock also is on SwingTrader. ANET stock and Tesla are on the IBD 50 list. Arista and STLD stock 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 prior two days.
Meanwhile, China stocks Pinduoduo, Baidu, BYD, Nio and Li Auto are in focus with key news on tap.
U.S.-listed Chinese stocks bounced Thursday, sometimes strongly, on a report that a U.S.-China auditing deal was close. The preliminary accord, confirmed Friday, substantially eases delisting fears.
PDD stock and Baidu in particular showed bullish action, but had earnings on tap. Pinduoduo stock jumped early Monday on blowout results, with Baidu due Tuesday. Tesla EV rival BYD reported booming earnings as well. BYD stock, Nio and Li Auto need some work, but are worth watching.
Dow Jones Futures Today
Dow Jones futures fell 0.75% vs. fair value. S&P 500 futures lost 0.8% and Nasdaq 100 futures tumbled 1%. While off their overnight lows, futures suggest the indexes may test their 50-day moving averages at Monday's open.
The 10-year Treasury yield climbed 0.5 points to 3.09%. The 2-year Treasury yield popped to 3.43%. The odds of another 75 basis point rate hike have risen to two-thirds as of Monday morning.
Crude oil futures rose slightly while gasoline futures sank nearly 2%. U.S. natural gas prices climbed more than 1%. Copper futures fell 3%.
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 stock market rally fell significantly last week with some positive action bookended by a Monday retreat and Friday's sharp sell-off on Powell's speech.
Powell's short-but-not-so-sweet Jackson Hole speech on Friday stressed the 1970s lesson for policymakers not to let their guard down quickly. The Fed chief said the U.S. needs a "sustained period of below-trend growth." That will mean some "pain" for households and businesses, he said, but the alternative is "far greater pain."
Bottom line: The Fed is going to raise interest rates significantly more, and keep them there.
The Dow Jones Industrial Average skidded 4.2% in last week's stock market trading. The S&P 500 index lost 4%. The Nasdaq composite gave up 4.4%. The small-cap Russell 2000 shed 3%.
The 10-year Treasury yield rose nearly 5 basis points to 3.035%, the fourth straight weekly gain.
U.S. crude oil futures rose 2.9% to $93.06 a barrel last week.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF climbed 1.65% last week, while the Innovator IBD Breakout Opportunities ETF lost 2.2%. The iShares Expanded Tech-Software Sector ETF shed 5.2%. The VanEck Vectors Semiconductor ETF tumbled 5%.
SPDR S&P Metals & Mining ETF climbed 3.4% last week, with STLD stock a notable holding. The Global X U.S. Infrastructure Development ETF retreated 2.5%. U.S. Global Jets ETF fell 2.1%. SPDR S&P Homebuilders ETF tumbled 5.1%. The Energy Select SPDR ETF climbed 4.3% and the Financial Select SPDR ETF 3.6%. The Health Care Select Sector SPDR Fund shed 4.2%
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 4.1% last week and ARK Genomics ETF edged up 0.7%. Tesla stock is a major holding across Ark Invest's ETFs. Cathie Wood's Ark also owns some BYD and Nio stock.
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Apple Stock
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 stock now has a 176.25 handle buy point in its base going back to the start of the year. The relative strength line, the blue line in the charts provided, has been hitting new highs. On Aug. 17, when Apple stock 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.
AAPL stock fell slightly before the open.
ANET Stock
Arista stock sank 5.4% to 123.03 last week to just below the 21-day moving average. Shares now have a 132.97 handle buy point in a double-bottom base. ANET stock is just 2.7% above its 200-day line vs. 10.5% on Aug. 18. The RS line hit a record high on a weekly chart.
Arista earnings and sales growth have accelerated for the past three quarters, 59% and 49%, respectively in Q2.
Tesla Stock
Tesla stock fell 2.9% last week to 288.09, closing slightly below its 21-day line after trying to get and stay above its 200-day line multiple times. A decisive reclaiming of the 200-day line, perhaps above 314.64, would offer an aggressive entry. But make no mistake, TSLA stock would still be low in the base, far from the official 402.73 buy point.
Shares fell modestly before Monday's open.
Tesla on Friday began selling a new lower base-model Model Y to Europe, with shorter range but a much-cheaper price. The prices vary significantly from country to country, 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 — introduce new models and ramp up EV and overall auto output.
On Monday, CEO Elon Musk said at a conference in Norway that he hoped to have Tesla's Full Self-Driving software ready by year-end. It's unclear if he that means he hopes FSD will achieve Level 4 or Level 5 autonomous driving — a promise he has made every year for nearly a decade — or simply will finish FSD in a Level 2 driver-assist status.
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China Stocks
Pinduoduo earnings crushed views before the open on Monday. Adjusted EPS came in at $1.13, up 156% vs. a year earlier and beating by 73 cents. Revenue rose 36% to $4.69 billion, more than $1 billion above consensus.
PDD stock leapt 10% in premarket trade to above 63.
PDD stock is in a bottoming base with an official 68.81 buy point.
Baidu is on tap early Tuesday. Both PDD stock and Baidu rebounded above their 50-day and 200-day lines on Thursday, offering early entries. Both gave up some of those gains Friday, but were up sharply for the week.
Investors could buy PDD stock's earnings gap up within the base, but shares are between early entries and the official buy point.
Baidu stock is in a 10-month consolidation with a 182.70 buy point. But shares are around a long, downward-sloping trendline. Also, investors could look at the action since late June as its base, with a 156.87 buy point.
BYD reported Q2 net profit shot up 197% vs. a year earlier in local currency terms, with revenue up 68%. The EV giant had reported strong preliminary first-half figures on July 14.
In the next few days, the Chinese EV and battery giant should begin Atto 3 deliveries in Australia and begin Seal sedan deliveries in China.
Nio, which reports earnings on Sept. 7, began deliveries of the ES7 SUV on Sunday. T ET7 sedan, its third new EV this year, will follow on Sept. 30.
Li Auto has been expected to start deliveries of its luxury L9 hybrid SUV before the end of the month. Due to power cuts in Sichuan province, there are reports that L9 deliveries will be delayed somewhat, but perhaps kicking off on Aug. 30.
Li Auto, Nio and Xpeng will report August deliveries on Thursday, Sept. 1, with BYD following a day or two later.
BYD stock and LI stock are finding support around their 200-day lines, retreating significantly after running up to highs in June.
Nio stock is just below its 50-day line within a bottoming base that's below the 200-day. A strong move above the 50-day line would also involve breaking a downtrend in the base, offering an early entry. But the still-falling 200-day line would quickly loom as resistance.
Market Rally Analysis
The stock market rally showed some encouraging action at times during the week, especially Thursday. But with Monday's retreat and Friday's Powell-led sell-off, the major indexes sold off hard for the week.
Powell's hawkish message wasn't a surprise, but the market did not react well. The Dow Jones, S&P 500 and Nasdaq composite knifed back below their 21-day moving averages and are now not that far away from their 50-day lines — as well as some big round numbers for each of the major indexes.
Dow Jones futures suggest the major indexes could move close to those key levels at Monday's open.
The Russell 2000, which was starting to move back toward its 200-day line, fell back hard as well Friday.
Many of the leading stocks that moved higher, especially Thursday, tumbled back Friday. ACLS stock, which leapt nearly 13% on Thursday to break out, wiped out the entire gain on Friday. On the plus side, Steel Dynamics edged up 0.1% on Friday, in a buy zone after jumping 6.6% on Thursday.
Since the indexes bottomed in June, there's been the concern that we're in a bear market rally. We still don't know the answer, but it certainly "bears" watching.
Commodity stocks are doing relatively well, including energy, fertilizer and steelmakers.
The SMH and IGV ETFs are nearly back to their 50-day lines, as chips and software had a bad finish to the week. ARKK is below its 50-day line.
Some former highly valued tech leaders may make big new runs, but most of them likely will not. After bottom-fishing rallies of 50%, 100% or more from bear market lows, many have sold off hard in the past few weeks.
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What To Do Now
When the Nasdaq tumbles nearly 4%, the prior day's breakouts are probably going to struggle. And that's what happened to many of Thursday's buys, though they could bounce back again.
But investors may need to pare exposure, especially if they ramped up in the past few days and are now sitting on some losses.
If the market shows some indication that it's ready to turn higher, fresh buying opportunities will arise, with Apple, Arista and Tesla among the possibilities. But investors should still be cautious, minding the risks of a quick head fake or resistance at the 200-day line.
Meanwhile, there's the risk that the market will retreat to the 50-day line, or worse. Depending on what followed, such a move could create a number of setups or a challenging period.
So run your screens this week and rework your watchlists. Keep your exposure modest, at least until the major indexes move above their 200-day lines. Even as you scan for new buys, be ready to scale out more aggressively.
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