Dow Jones Futures: Inventory market rally fizzles on financial fears, however Tesla, Sq. leads new buys; SolarEdge lights up late
Dow Jones futures rose slightly on Monday night, along with S&P 500 futures and Nasdaq futures, with SolarEdge making a big move overnight. The rally in equity markets undermined early gains on Monday as crude oil prices and government bond yields fell sharply on signs of slowing economic growth.
However, city square (SQ), Applied materials (AMAT) and DXC technology (DXC) broke out, at least underground. Tesla (TSLA) cleared an early buy point as China’s EV rivals Nio (NOK), Li car (LI) and Xpeng engines (XPEV) rose from July sales and BYD Co. (BYDDF) has exceeded its own buy point.
After graduation, manufacturer of solar power products SolarEdge technologies (SEDG), chip equipment manufacturer Ultra-clean stocks (UCTT), automotive and wireless chip maker NXP Semiconductors (NXPI), shipping company Danaos (DAC) and marketing software manufacturer ZoomInfo technologies (ZI) all reported better than expected profits.
All five stocks had closed in or near buy areas.
SEDG stock skyrocketed, signaling the resumption of its 200-day line and breaking a downward sloping trendline. The ZI share, which closed just above a buy point, climbed close to the top of its consolidation. NXPI stock was flat after breaking briefly during Monday’s session before cutting gains.
The DAC share fell slightly overnight. In Monday’s session, Dacanos closed just above its 50-day line and right on a short trend line. UCTT stock, which briefly broke a trendline during the day on Monday before fading, fell slightly overnight despite a beat-and-raise report.
Chinese e-commerce giant Alibaba (BABA) reported early Tuesday. BABA stock, which hit a 16-month low last week, is nowhere near a buying opportunity. However, Alibaba’s earnings, forecasts, and comments will be noteworthy as investors seek to understand the Chinese government crackdown on internet giants, ridesharing, for-profit schools, and US-listed Chinese companies in general.
DXC Stock, Tesla, and Square are on the IBD leaderboard. Tesla Stock and Square are on SwingTrader. The SQ share was the IBD share of the day on Monday. UCTT stock was Monday’s IBD 50 stock pick.
The video embedded in this article has been analyzed Delete safely (YOU), Square and AMAT inventory.
Dow Jones Futures today
Dow Jones futures rose 0.3% from fair value. S&P 500 futures rose 0.2%. Nasdaq 100 futures were up nearly 0.2%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily result in an actual trade in the next regular trading session.
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Stock market rally
The rally in equity markets faded too mixed as sharp falls in energy prices and government bond yields weighed on energy and financial stocks, weighing on the Dow Jones, S&P 500 and Russell 2000.
The Dow Jones Industrial Average fell 0.3% in trading on Monday. The S&P 500 index lost 0.2%. The Nasdaq composite rose less than 0.1%. The small-cap Russell 2000 lost 0.5% after meeting resistance on its 50-day line for the third day in a row.
Two Chinese manufacturing indices showed that factory growth slowed more than expected in July. The US industrial index of the ISM showed an unexpected decline, but still signaled a strong expansion. The index of prices paid by the ISM declined from extreme levels as the rise in the cost of raw materials slowed somewhat.
The price of crude oil fell 3.6% to $ 71.26 a barrel. The 10-year government bond yield fell 6.5 basis points to 1.17%, its lowest closing price since February.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.5%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.1%. The iShares Expanded Tech-Software Sector ETF (IGV) closed just above break-even. The VanEck Vectors Semiconductor ETF (SMH) climbed 0.7%, with AMAT shares representing a notable position.
SPDR S&P Metals & Mining ETF (XME) lost 2.1% after rising 7% last week. Global X US Infrastructure Development ETF (PAVE) fell 1%. The US Global Jets ETF (JETS) was down 0.9%. SPDR S&P Homebuilders ETF (XHB) lost 0.1%. The Energy Select SPDR ETF (XLE) was down 0.75%. The Financial Select SPDR ETF (XLF) closed just above break-even. The more interest-sensitive S&P Regional Bank ETF (KRE) lost 1%.
The ARK Innovation ETF (ARKK) was up 1% and the ARK Genomics ETF (ARKG) was up 0.1%, reflecting more speculative story stocks. Tesla stock is # 1 among ARK Invest’s ETFs. The SQ share is one of the top 5 holdings.
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On Sunday, Square agreed to acquire AfterPay, an Australian fintech specializing in the rapidly growing “buy now, pay later” consumer finance field. The leader in digital payments also reported escalating profits, although sales fell into the light.
SQ stock fell as much as 5% on the pre-market deal as part of the $ 29 billion deal, but it reduced losses on the opening and soared quickly. Square stock rose 10% in massive volume to 272.38 and sped past a new handle buy point of 267.87.
Applied materials warehouse
The AMAT share rose as high as 145.25 and cracked a buy point of 142.89 on a basis that goes back to early April. But stocks cut their gains, ending up 1.5% at 142.01. However, that’s just above a downward sloping trendline.
Applied Materials stock had a build day on Friday and rebounded slightly from its 50-day line.
Applied Materials earnings are due on August 19th.
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DXC stock jumped 6.6% to 42.61 and rebounded from its 50-day line to break a 41.85 flat-base buy point on high volume, according to MarketSmith analysis. The line of relative strength hit a record high on the breakout, making DXC Technology a “blue dot” stock. The only disadvantage? The DXC winnings are due on Wednesday, leaving little time to build up a cushion.
Tesla stock rose 3.3% to 709.67, making an early entry of 700.10 clear. Stocks retreated from the intraday highs of 726.94, but so did the entire market. Tesla stock has rebounded 9.7% in the past three sessions, all in above-average volume. Late last week, TSLA stock bounced back from its 200-day line and broke a downtrend, offering an aggressive entry. The RS line for Tesla stock, while still below its January high, is at least above a short-term high.
Meanwhile, Chinese electric vehicle manufacturers Li Auto, Xpeng Motors and Nio all reported sales in July, more than doubling from a year earlier. However, Nio saw a slight decrease from June.
Nonetheless, the Nio share rose 2.6%. The Li-Auto share fell sharply and ended up at 0.9%. XPEV stock rose 7.1%.
BYD Co., a profitable manufacturer of electric cars, hybrid and gas vehicles, and electric buses and batteries, will soon report sales for July. But BYDDF stock rose 7.1% to 33, breaking a buy point of 31.40 from a very low base with Henkel. It is now just past the buy zone, which ends at 32.97, and BYD is now 20% above its 50-day line. A potentially better time to buy BYDDF stock was Thursday as it broke a trend line in its deep grip.
Tesla isn’t breaking out monthly China sales, but industry figures for Tesla should come in the next two weeks. However, since Tesla Shanghai exports both Model 3 and Model Y to Europe, it is difficult to accurately estimate local demand other than quarterly.
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Analysis of the market rally
The stock market rally gave up modest morning gains. But given the sharp drop in oil prices and 10-year government bond yields, that’s not a bad thing.
Leading stocks held up relatively well, at least under the technology-related names.
Along with breakouts like Square and early entries like Tesla shares, a few leading stocks found bullish support, including CrowdStrike (CRWD) and Shopify (LOAD).
Steel makers pulled out on a bad day for raw materials, but steel stocks have been big winners in the past few weeks.
If the weaker manufacturing indices in the US and China are merely a downward move or a pause in a fast-paced global economy – with supply chain and labor shortages hurting many sectors – stocks should continue to rise. But if economic growth slows significantly from here, it would weigh on stocks, not just the names of the real economy.
So watch out for economic data and upcoming news like Friday’s job numbers. But as with revenue, the business news doesn’t matter, it’s the reactions to the news.
In the meantime, this is a trust but verification market. It’s a confirmed stock market rally, but it has some flaws and is not rushing forward. Definitely take advantage of the buying opportunities in this market. But keep an eye on your holdings, the overall leading stocks, and the broader market. When conditions change, adapt to the market – don’t let the market break you.
Read The Big Picture daily to keep up with market direction and leading stocks and sectors.
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