Dow Jones futures fell slightly Monday morning, along with S&P 500 futures and Nasdaq futures. Tesla rose as it touted an Austin-made Cybertruck with earnings on tap this week.
The stock market rally had a powerful week, with the S&P 500 and Nasdaq composite running to fresh 52-week highs. A lot of stocks offered buying opportunities.
But investors may want to exercise caution in the very near term. The Nasdaq is somewhat extended, raising the risks of a pullback. Many stocks that flashed buy signals late in the week fell back Friday with the Nasdaq reversing slightly lower Meanwhile, many other leading stocks are extended as well.
Finally, earnings season is a wild card for individual stocks and the broader market.
Nasdaq 100 Rebalance
The Nasdaq is expected to spell out soon how a Nasdaq 100 special rebalance will adjust weights of its 100 components. The details were expected Friday night but have not arrived yet.
The Magnificent Seven of Microsoft, Apple, Nvidia, Tesla, Google parent Alphabet, Meta Platforms and Amazon.com are set to see their outsized-dominance lessened in the special rebalance that takes effect before the open on July 24.
But that upcoming rebalance, first announced on July 7, didn't stop megacaps from having a big week, especially Meta stock, Nvidia and Google.
Friday night, a federal appeals court rejected an FTC bid to prevent Microsoft from closing its takeover of Activision Blizzard. Nasdaq has already said Trade Desk will replace ATVI stock in the Nasdaq 100 before Monday's open. ATVI stock rose Monday in anticipation of the deal closing.
Meanwhile, Tesla earnings are due Wednesday night for the second quarter, following strong preliminary results from China EV giant BYD. The EV maker on Saturday showed off its first Cybertruck made at its Austin plant.
Nvidia stock and Tesla are on Leaderboard. Microsoft stock is on the IBD Long-Term Leaders list. TSLA stock is on the IBD Big Cap 20.
The video embedded in the article discussed the strong market action this week and analyzed Nvidia rival Advanced Micro Devices, Rambus and Eli Lilly.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures declined 0.2%. Nasdaq 100 futures dipped 0.1%, with TSLA stock helping to limit losses.
The 10-year Treasury yield sank 4 basis points to 3.78%.
Crude oil futures declined 1%. Copper tumbled nearly 3%, amid disappointing China data.
China reported second-quarter GDP rose 6.3% vs. a year earlier, below the 7.3% gain expected. Unemployment among adults aged 16-24 hit 21.3% in June, a new record. June retail sales climbed 3.1%, just below forecasts for 3.2%. But industrial production advanced 4.4%, above views for 2.7%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally had a stellar week, as tame inflation reports eased Fed rate hike fears and sent Treasury yields and the dollar tumbling.
The Dow Jones Industrial Average rose 2.3% in last week's stock market trading, hitting a 2023 high and just below a 52-week best. The S&P 500 index popped 2.4% and the Nasdaq composite leapt 3.3%, both setting fresh 52-week highs. It was the Nasdaq's best weekly gain since the end of March.
The small-cap Russell 2000 jumped 3.7%.
The Invesco S&P 500 Equal Weight ETF climbed 2.4%, in line with the S&P 500.
The First Trust Nasdaq 100 Equal Weighted Index ETF raced 3.9% higher, slightly outpacing the Nasdaq 100's 3.5% gain.
The small-cap Russell and the equal-weight indexes point to the big improvement in market breadth. While losers easily beat winners on Friday, advance-decline lines have risen significantly in the past couple of weeks while new highs have trounced new lows.
Leaders had a great week, with software and chip stocks prominent among new buying opportunities.
However, the Nasdaq is 7.4% above its 50-day line, while the Nasdaq 100 is 8% above that key level. That raises the risk of another market pullback. The Nasdaq could get even more extended, but that would greatly increase the odds of market retreat, with a greater likelihood that it would larger.
Friday's retreat from highs could reflect the market's need for a pause. Many leading stocks erased gains or reversed lower, but weekly charts generally look strong.
The 10-year Treasury yield plunged 23 basis points to 3.82%, even with Friday's gain of 6 basis points.
U.S. crude oil futures rose 2.1% to $75.42 a barrel last week, but did fall 1.9% on Friday.
Copper futures jumped 4.1% for the week.
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ETFs
Among growth ETFs, the Innovator IBD 50 ETF popped 3.4% last week. The iShares Expanded Tech-Software Sector ETF soared 5.6%, with MSFT stock a huge component. The VanEck Vectors Semiconductor ETF leapt 5.3%. Nvidia stock is the top holding in SMH.
Reflecting more-speculative stocks, ARK Innovation ETF spiked 11.1% last week and ARK Genomics ETF 9.4%. Tesla stock is the No. 1 holding across Ark Invest's ETFs. Cathie Wood's Ark also owns some Nvidia and BYD stock.
SPDR S&P Metals & Mining ETF rose 2% last week. The Global X U.S. Infrastructure Development ETF gained 2.6%. U.S. Global Jets ETF reversed lower for a 1.4% decline. SPDR S&P Homebuilders ETF shot up 7.1%. The Energy Select SPDR ETF edged up 0.8% and the Health Care Select Sector SPDR Fund climbed 2.1%. The Industrial Select Sector SPDR Fund advanced 2.3%.
The Financial Select SPDR ETF rose 2% and the SPDR S&P Regional Banking ETF popped 4%. The bank ETFs pared weekly gains Friday, after a number of big financials reported.
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Tesla Earnings
Analysts expect Tesla earnings to show a modest gain vs. a year earlier. In Q2 2022, the Shanghai plant was shut down for several weeks to Covid, while the Berlin and Austin plants were slowly ramping up. Earnings per share could be roughly flat with Q1's 85 cents.
Tesla already reported Q2 deliveries of 466,140 EVs, easily beating views thanks to ongoing price cuts and incentives. Gross margins for Q2 will key after tumbling in Q1 and in recent quarters.
Tesla Discounts Continue
Tesla continues to increase discounts in the third quarter, suggesting more pressure on gross margins. In Germany, there's now nearly a 10% discount on the Model 3 LR RWD off the list price. Tesla has tried to limit official price cuts in recent months, avoiding negative headlines.
Tesla Cybertruck
Early Saturday, the EV giant tweeted a photo of the first Tesla Cybertruck made at the Austin factory. That kicks off production of the love it-or-hate it EV.
During the Tesla earnings call, investors will want some timeline on when mass production will start for the long-delayed Cybertruck. Potential buyers still don't know what prices or specs the Tesla Cybertruck will have. Tesla originally said the Cybertruck would start at $39,900, with a $69,900 tri-motor version with a range above 500 miles. But it took those down years ago, while CEO Elon Musk has noted that the stainless-steel design is expensive.
Investors also will be interested in news about an upcoming updated Model 3. Investors also will look for news on a future Mexico plant, which will make Tesla's next-generation model. Musk has hinted at the next-gen model, but no more than that.
Tesla Stock
Investors are upbeat heading into Tesla earnings. Shares rose 2% early Monday after the weekend Cybertruck news.
Tesla stock rose 2.5% last week to 281.38, hitting a fresh 2023 high intraday Friday. TSLA stock is up 128% in 2023. Shares are working on a 313.80 buy point from a deep consolidation going back to late September.
Meanwhile, Tesla archrival BYD reported preliminary first-half results, signaling Q2 profit could nearly triple. BYD stock rose 3.7% to 34.53 last week, rebounding from the 21-day and 10-week lines, offering a new entry.
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What To Do Now
Traders should have been adding exposure in the latest week and be significantly invested at this point.
Despite all the good news and positive long-term trends, this is not a great time to be making new buys. Also, the market is getting extended again. A modest pullback may not mean much for holdings with a decent cushion, but could quickly put newer buys underwater.
Friday's market action, with the major indexes erasing modest morning gains, pushed a number of stocks below recent entries. Many of these names still look solid on weekly charts.
As a practical matter, a lot of stocks are now extended from buy points, such as Nvidia.
Also note that earnings season is ramping up, with the potential for big swings up and down for individual stocks and sectors as well as the broader market.
But investors should keep their watchlists up to date. This is how you spot quality setups so you're ready to pounce when entries present themselves.
Analyze your portfolio. Which holdings might you take profits in and which do you want to try to add a few more shares?
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