Dow Jones futures rose slightly Sunday evening, along with S&P 500 futures and Nasdaq futures.
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Last week was wild, with the major indexes breaking to bear market lows before rebounding powerfully on Thursday despite a hot inflation report. Stocks resumed selling Friday as Treasury yields powered higher.
While a market rally attempt is still ongoing, the major indexes are all in major downtrends. Stocks that flash buy signals or set up, suddenly crack. Investors should remain cautious until the market shows real signs of strength.
Tesla (TSLA) and Netflix (NFLX) headline earnings in the coming week. TSLA stock has tumbled to 52-week lows. NFLX stock has set up in a bottoming base, but faces significant overhead resistance.
Meanwhile, Shockwave Medical (SWAV), Wolfspeed (WOLF), Aehr Test Systems (AEHR), Albemarle (ALB) and Digi International (DGII) are growth stocks that are holding up reasonably well, but are not yet in position amid the current weak market. All have suffered damage in recent days, including Friday. They could break decisively lower if the market shows further weakness. But, if the market strengthens, these could be notable winners.
Xi Downplays Growth, Defends ‘Zero-Covid’
Chinese President Xi Jinping on Sunday downplayed rapid growth and stressed self-sufficiency amid a sluggish economy and fierce U.S. restrictions on chip tech exports to China. Xi spoke speaking at the ruling Communist Party’s five-year meeting, where’s he’s set to break tradition and get a third five-year term. He also continued to defend China’s “zero-Covid” policy, which continues to impose lockdowns and severe restrictions on people and business. Xi said Beijing will “never promise to renounce” using force to reunify Taiwan with the mainland.
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures advanced 0.4% and Nasdaq 100 futures climbed 0.5%.
Crude oil futures edged higher. U.S. natural gas prices 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.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Last Week
The stock market sold off to fresh bear market lows, rebounded, and then started sliding again in volatile weekly action.
The Dow Jones Industrial Average rose 1.2% in last week’s stock market trading. The S&P 500 index slid 1.5%. The Nasdaq composite tumbled 3.1%. The small-cap Russell 2000 fell 1%.
The 10-year Treasury yield leapt 13 basis points to 4.01%, extending the weekly winning streak to 11 weeks. The 10-year Treasury yield hit a 14-year high of 4.06% on Thursday. The two-year Treasury yield, more closely tied to Fed policy and where rates may be headed, surged to 4.5%.
U.S. crude oil futures fell 6.8% to $86.40 a barrel last week. Natural gas prices slumped 3.8%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 3.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) tumbled 5.7% while the VanEck Vectors Semiconductor ETF (SMH) plunged 8.2%, both to fresh two-year lows.
SPDR S&P Metals & Mining ETF (XME) declined 3.1% last week. The Global X U.S. Infrastructure Development ETF (PAVE) sank 1.5%. U.S. Global Jets ETF (JETS) ascended 5.75%. SPDR S&P Homebuilders ETF (XHB) lost 4.2%. The Energy Select SPDR ETF (XLE) gave up 1.9% and the Financial Select SPDR ETF (XLF) edged up 0.4%. The Health Care Select Sector SPDR Fund (XLV) advanced nearly 1%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 9.4% last week, on the cusp of breaking below its March 2020 Covid crash low. ARK Genomics ETF (ARKG) dived 7.1%, still above its June lows. TSLA stock is the top holding across Ark Invest’s ETFs.
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Stocks To Watch
SWAV stock tried to bounce back for most of last week, but rose in light volume. On Friday, shares reversed hard from the 50-day line, closing down 7.6%. Shockwave stock is still above its September lows, holding in a consolidation with a 315 buy point. A decisive move above the 50-day line could trigger an early buy point from a downsloping trendline. While SWAV stock has been volatile, the relative strength line is holding right at highs.
WOLF stock also hit resistance at the 50-day line Friday, plunging to near Thursday’s low, which was well below prior trading from the past two months. The EV-focused chipmaker is nearing a 200-day line, with a decisive break possible. If Wolfspeed finds support and rebounds, it could soon have a new base.
AEHR stock tumbled back below its 50-day line on Friday, capping a tough week. The EV-focused chip-gear maker spiked higher in the prior week amid blowout earnings, offering an early entry in a consolidation. The official buy point is 19.53. Clearing the Oct. 10 high of 17.61 could offer an aggressive entry.
ALB stock plunged nearly 13% for the week, amid market weakness and analyst expectations that lithium prices, at record highs, will fall substantially. A week ago, Albemarle stock was on the cusp of buy signals. Now, ALB stock must hold its 200-day line.
DGII stock surged to a record high on Oct. 6, but has sold off since then. On Thursday, the networking play plunged far below its 50-day line, but rallied to close almost flat. But with stocks tumbling again Friday, Digi International fell back toward Thursday’s losses. DGII stock needs time to forge a new base, but its strong growth and RS line make it worth watching.
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Netflix Subscriber Shift
Netflix earnings are due Tuesday night, but analysts and investors will be focused on subscribers. They’ll especially be interested in Netflix’s subscriber outlook. Last week, Netflix announced that its ad-support tier will launch Nov. 3, priced at $6.99 a month.
Netflix stock has forged a bottoming base after crashing from mid-November to mid-May. Shares are trading around the 50-day line, but still below a fast-falling 200-day. The buy point is 252.09. That’s only slightly above the top of NFLX stock’s earnings gap down on April 20, signaling a lot of overhead resistance there.
Tesla Earnings
Tesla earnings are set for Wednesday night. Analysts expect a 53% EPS gain with revenue up 62% to $22.28 billion. But investors will likely be interested in future growth prospects. Q3 deliveries hit a record 343,800, but that was well below estimates of roughly 360,000, and some 22,000 vehicles below what Tesla produced in the quarter.
China backlogs have fallen significantly for the not-so-fresh Model 3 and Y, while competition is heating up dramatically. With Shanghai production set to increase significantly, will Tesla be able to export the bulk of that increase in Q4 and beyond? Or will the EV giant start cutting prices, after raising them substantially over the past two years?
Meanwhile, investors will want to get new hints about the Cybertruck and any other future products. Elon Musk recently tweeted that Tesla Semi production has begun, but in what quantity? There are still many questions about Semi prices, costs and key specs.
Tesla stock fell significantly for a fourth straight week, finally undercutting its May low to the worst levels in 16 months. Admittedly, it’s not a good time for most growth stocks, especially EV makers. TSLA stock, down over 50% from its November 2021 peak, needs a lot of repair work.
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Stock Market Analysis
The Dow Jones, S&P 500 and Nasdaq all hit bear market lows last week. On Thursday, they rebounded powerfully from steep intraday losses following a hot inflation report. But on Friday, the major indexes gave back much or all of the prior day’s gain, though they remained above Thursday’s lows.
The Dow Jones, which retook its 21-day moving average on Thursday, fell back Friday. The S&P 500 and Russell 2000 hit resistance at that short-term level, which also coincides with the top of a downsloping trendline. The Nasdaq never approached its 21-day, stumbling at the 10-day line.
For the week, the Dow Jones rose, while the S&P 500 and Nasdaq retreated.
A market rally attempt is still ongoing, but hasn’t done anything yet to suggest a true bottom has been set.
It’s hard to see a sustained market rally taking hold while Treasury yields are rising and the Federal Reserve is tightening aggressively. The 10-year yield is at 13-year highs, above 4%. Fed rate hike forecasts rose further this past week amid the hot inflation data.
This past week included positive market reaction to U.K. government actions as well as the early start to earnings season. But the coming weeks will see a deluge of earnings that could roil the market as well as individual stocks and sectors.
There are a number of medical and energy stocks that are holding up well, including Eli Lilly (LLY), Humana (HUM), Vertex Pharmaceuticals (VRTX), Cardinal Health (CAH), Exxon Mobil (XOM) and Devon Energy (DVN).
Most growth stocks are heavily damaged, including Tesla. Even names such as Shockwave and DGII stock are prone to sharp sell-offs just as they’re setting up.
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What To Do Now
Investors need to be patient and preparing for tomorrow. While big rebounds like Thursday are exciting and raise the possibility of a market bottom, a lot more evidence is needed to suggest that’s the case.
Even if the market rally gains steam and stages a follow-through day, that’s not a signal to push all your chips in. A FTD could fail quickly, or the uptrend could simply be another short-term tradable rally within the bear market.
Investors should focus on preparing for the next uptrend. Looking for stocks holding in bases above their 50-day line is great. But also track relatively strong stocks with damaged charts.
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.
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