Dow Jones futures fell Thursday morning, along with S&P 500 futures and Nasdaq futures, but well off pre-market lows. Nvidia ( NVDA ) and AMD shares fell overnight, dragging semiconductors down after they said the U.S. government has imposed export restrictions on certain chip sales to China.
Stocks rallied for a brief, weak rebound on Wednesday, with the major indexes hitting resistance at the 50-day moving average before turning lower.
China EV startups such as Nio released August sales on Thursday morning.
AMD, Nvidia shares fall to curbs in China
Nvidia shares fell 5% in premarket trading. The chip giant said in an SEC filing Wednesday night that the U.S. government has imposed new licensing requirements that bar certain advanced data center chip sales to China and Russia. Nvidia said the US is citing “military end-use” concerns. Nvidia, which does not currently sell products to Russia, said the restrictions could affect $400 million in sales to China.
The US government is increasingly imposing curbs on China for advanced chip technology. Beijing reacted to the new export restrictions, saying the US was trying to impose a technological blockade on China.
Nvidia rival Advanced Micro Devices (AMD) reported a similar US announcement to sell China various GPUs with AI use. AMD stock fell nearly 3% in early trading. Taiwan Semiconductor Manufacturing ( TSM ), which makes Nvidia chips, fell 2%.
The SMH ETF, of which all three chipmakers are a large part, fell nearly 2%. Several other chip stocks fell modestly in the wake of the Nvidia and AMD news.
Clean storage (PSTG) total overnight earnings. The PSTG share jumped on better than expected earnings and income guidance. Shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day mark. PSTG stock could test a buy point at 31.62 from a cup-with-handles base.
China EV sales
Chinese electric cars start early Thursday Nine (NIO), Li Auto (LI) and XPeng engines (XPEV) will report delivery data for August. EV and battery giant BID (BYDDF) will likely report on Friday or Saturday. The Nio share, together with the shares in Li Auto, Xpeng, BYD and the EV giant Tesla (TSLA) is struggling right now.
The new US ban on the sale of certain Nvidia and AMD chips could possibly have an impact on Chinese electric car makers, especially those with self-driving or driver assistance features.
Dow Jones Futures today
Dow Jones futures fell 0.2% relative to fair value. S&P 500 futures dipped 0.3% and Nasdaq 100 futures fell 0.5%, with AMD and Nvidia stocks and chips collectively weighing on S&P 500 and Nasdaq futures. But futures are doing well with overnight lows.
The 10-year government yield rose 6 basis points to 3.19%.
Crude lost more than 1% and copper fell 1.5.
Meanwhile, Chengdu, the capital of Sichuan province in SW China, is locking down its 21 million residents due to Covid cases.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
With the market recovery so weak, investors should be wary of new purchases and act to reduce exposure. But they should be looking for potential leaders for their watch lists.
Enphase Energy (ENPH), Pinduo duo (PDD) and NBIX stocks are all consolidating well, with relative strength lines at 2022 highs.
Enphase Energy and PSTG shares are on the IBD 50 list. ENPH stock is also on the IBD Big Cap 20. Neurocrine Life Sciences (NBIX) was Wednesday’s IBD Stock Of The Day.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
Stocks rallied on Wednesday morning, but the major indexes quickly pulled back, closing at record lows.
The Dow Jones Industrial Average lost 0.9% in Wednesday’s trading. The S&P 500 index fell 0.8 percent. The Nasdaq composite and small-cap Russell 2000 retreated 0.6%.
US crude oil futures fell 2.3% to $89.55 a barrel.
The 10-year government yield rose 2 basis points to 3.13%.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.4%. The iShares Expanded Tech-Software Sector ETF ( IGV ) and the VanEck Vectors Semiconductor ETF ( SMH ) fell 0.7%. TSM, Nvidia and AMD stocks are major SMH holdings.
The SPDR S&P Metals & Mining ETF ( XME ) fell 0.8%. The Energy Select SPDR ETF (XLE) gave up 0.9%. The Health Care Select Sector SPDR Fund ( XLV ) fell 0.6%.
Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) dipped 0.1% while the ARK Genomics ETF ( ARKG ) rose 1.3%. Tesla stock is a large holding across Ark Invest’s ETFs. Cathie Wood’s Ark also owns some Nio and BYD shares.
Top five Chinese stocks to watch now
China EV sales
Nio, Li Auto and XPeng reported deliveries in August before Thursday’s open.
Nio delivered 10,677 vehicles in August, up 82% compared to the previous year and up 6% compared to July. That includes some ES8 SUVs, which started delivery on August 28.
The Nio share fell 2% before Thursday’s opening. Shares rose 0.6% to 19.95 on Wednesday, hovering below the 50-day line. Nio is working with a bottom buy point of 24.53 which would involve getting above the 200-day mark.
LI inventory delivered just 4,577 hybrid SUVs, down 56% from July and 52% from a year earlier. Upcoming vehicles may have dampened demand for the existing Li One hybrid SUV. The L9 hybrid SUV began delivery on August 30, with the L8 arriving in November.
Li Auto fell 2% before the open. Shares fell 0.1% to 28.77 on Wednesday, hitting 200-day line resistance again.
XPeng deliveries came in at 9,578, up 96% from a year earlier, but down 17% from July. Xpeng will have a new SUV, the G9, out in Q4. XPEV shares fell more than 1% on Thursday. Shares rose 1.4% on Wednesday to 18.52, after hitting a 22-month low on Tuesday.
Meanwhile, BYD is likely to report August sales on Friday or Saturday. Sales of electric cars and plug-in hybrids in July rose by 222% compared to a year earlier to 162,350. There are indications that BYD will set another record in August.
On Monday, BYD reported that earnings in the first half of the year tripled compared to a year earlier, with sales up 60%. That sent shares modestly higher.
But BYD shares plunged 7.8% on Tuesday, followed by a 4.35% loss to 30.75 on Wednesday. Shares in the electric car and battery giant have fallen below the 200-day mark after hitting a record high of 43.61 on June 28.
Warren Buffett’s Berkshire Hathaway (BRKB) disclosed on Tuesday that it sold 1.33 million H shares on Aug. 24 in Hong Kong, less than 1% of its large BYD stock stake. Berkshire still owns a little less than 8% of BYD, but investors worry it will continue to sell shares.
Tesla doesn’t break out China sales, but a trade official suggested Shanghai production hit a near-record 77,000 in July. Industry data suggests local sales topped 30,000 in August, excluding exports to Europe and elsewhere. More complete industry data for Tesla will come later in September.
Shares fell 1% before the open, near the 50-day line. Tesla shares fell 0.75% to 275.61 on Wednesday. Shares are falling from the 200-day and 21-day moving averages.
Tesla vs. BYD: Which EV giant is the best buy?
Market rally analysis
The share rise does not show much struggle. The major indexes rose on Wednesday morning, but quickly hit a wall at the 50-day moving average. They retreated, eventually ending at low sessions.
The Russell 2000 and S&P 400 MidCap retreated to just above the 50-day line, although they ended slightly below their 10-week averages.
Getting back above the 50-day line is important for the Nasdaq, but it certainly wouldn’t be a clear signal for bulls. On the other hand, it wouldn’t take much of a decline to push the shaky market rally into a correction.
The US ban on certain Nvidia and AMD chip sales will hit the semiconductor sector on Thursday. Software names, especially highly valued growth, are under pressure as Octa (OKTA), MongoDB (MDB) and See (VEEV) fell more than 10% after earnings.
Time the market with IBD’s ETF market strategy
What to do now
The market recovery is still under pressure for now, but the weakness is obvious. Investors should look to take profits and cut losses rather than adding exposure.
Work on your watchlists. Keep looking for possible setups, but be sure to keep track of quality stocks with high relative strength, even if the charts aren’t mature yet. But stocks can perform better in a weak market until they suddenly falter. And relative winners can still be absolute losers.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.
YOU MAY ALSO LIKE:
Do you want to make quick profits and avoid big losses? Try SwingTrader
Best growth stocks to buy and watch
IBD Digital: Unlock IBD’s Premium stock lists, tools and analysis today
200-Day Average: Last Support Line?