Dow Jones Futures: Market Correction Gets Worse, Tesla Breaks Down; What you need to do now
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. The stock market had another grizzly week, even with a furious decline in the last hour to erase Friday’s loss.
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The major indices all confirmed a new market rally on Tuesday. But that rally immediately had problems with a big sale on Wednesday. The Dow Jones lowered its lowest on May 12 on Thursday, while the S&P 500 and Nasdaq did so on Friday, ending the rally after just a few days. A setback in the last hour erased Friday’s loss, but the major indices were still down sharply for the week again.
Dealers such as Goal (TGT) and Walmart (WMT) helped trigger the broad, broad sales. But megacaps apple (AAPL), Google parent Alphabet (GOOGL) and especially Tesla (TSLA) were also big losers.
The Tesla stock was hit particularly hard, while it became a top rival BYD (BYDDF) had a solid week. BYD launched pre-orders for its Seal EV, a new Tesla Model 3 rival, on Friday. China EV startup Xpeng (XPEV) reports early Monday.
With inflation pushing consumers and businesses and the Fed rapidly raising interest rates as a result – along with problems in global supply chains – the economic outlook looks difficult at best. Right now, the stock market is still adapting to the new reality where a “hard landing” is a significant or even probable opportunity.
Individual investors must also adapt to the harsh reality.
The Dow Jones Giants Chevron (CVX), Eli Lilly (LLY), World Wrestling Entertainment (WWE) and ZIM integrated shipping (ZIM) is all worth seeing. LLY shares and these other names are close to buy points with their relative strengths at or near heights.
The ZIM stock is on the IBD 50. The CVX stock is on the IBD Big Cap 20. The WWE stock is the focus of this week’s New America feature. The video embedded in this article discusses the weekly action in detail, while analyzing the LLY stock, ZIM and Tesla.
Dow Jones Futures today
Dow Jones futures open at 6pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze powerful stocks in the stock market rally on IBD Live
Stock market
The stock market showed something promising on Tuesday, but ended up with another week of large losses.
The Dow Jones Industrial Average fell 2.9% in last week’s trading session. The S&P 500 index fell 3 percent. Nasdaq composites fell 3.8%. Small-cap Russell 2000 withdrew 1.9%.
The target stock plunged 19.3% and the Walmart stock 19.3%, both to the lowest point since 2020, due to weak earnings and guidance. Ross Stores (ROST) crashed 21.9% on weak results and guidance. Dollar tree (DLTR) and Costco Wholesale (COST), which reports this coming week, fell 19.8% and 16.3% respectively.
But the theme of rising costs and weaker demand spread beyond retail to trucking companies and even food producers, traditionally a defensive safe haven.
Apple shares fell 6.5%, the eighth weekly loss in a row. Google shares fell 6.15% due to advertising issues. Tesla shares crashed almost 14%, with several specific factors weighing on the electric car giant.
The 10-year government interest rate fell 15 basis points to 2.78%, after falling 19 basis points last week. The downturn in government interest rates reflects concerns about economic growth.
US crude oil futures rose 2.5% to $ 110.28 a barrel last week.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 5%. iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both fell 1.8%.
SPDR S&P Metals & Mining ETF (XME) rose 0.6% last week. Global X US Infrastructure Development ETF (PAVE) retreated 2.4%. The US Global Jets ETF (JETS) rose 0.6 percent. SPDR S&P Homebuilders ETF (XHB) fell 3.6%. Energy Select SPDR ETF (XLE) rose 1.3%, with Chevron stock as an important component. Financial Select SPDR ETF (XLF) lost 1.8%. The Health Care Select Sector SPDR Fund (XLV) rose 0.9%, with the LLY stock a remarkable holding. SPDR S&P Retail ETF (XRT) crashed 9.45%, with large holdings in WMT shares and TGT shares.
ARK Innovation ETF (ARKK) reflects more speculative history stocks, retreating 2.7% last week, while ARK Genomics ETF (ARKG) rose 0.6%. The Tesla share remains the No. 1 holding across Ark Invest’s ETFs, even though it is no longer the No. 1 position in ARKK. Ark Invest also owns some Xpeng and BYD shares.
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Stocks to see
The Chevron stock topped a short buy point of 174.86 on a flat base on Monday, but retreated before the week ended with 5 cents to 167.88. The CVX stock holds support around its 21-day and 50-day lines.
The LLY stock appeared Monday, rebounding from around the 50-day line for an early entry into a flat base after the FDA OK’d a “novel” diabetes drug that could also be an obesity treatment. Shares fell below the 50-day limit on Thursday, but returned on Friday. Eli Lilly shares rose 2.5% to 298.85 for the week. A few large drug manufacturers such as LLY stocks, which offer defensive growth, have held up well in the bear market.
The ZIM stock was up and down for the week, ending with a rise of 1.65% to 64.70. Stocks seem to be working on a handle in a cup base, but it needs another day. The container-based sender ZIM Integrated reported that EPS rose by 190% as revenues more than doubled, both beating. ZIM also announced a dividend of $ 2.85 per share.
Shares of the WWE rose 4.6% to 60.91 last week, moving above the 50-day line after finding support just above the 200-day line last week. The stocks are working on a flat base with 63.81 buying points, according to MarketSmith analysis. The WWE stock closed right on a trend line, just above the 50-day line, providing an early entry.
Tesla shares
Tesla shares plunged 13.7% last week to 663.90, with Friday’s loss of 6.4% to a recent nine-month low, giving a decisive break below levels on 24 February and 12 May. In contrast, in these cases, the TSLA stock did not return sharply from low days during the day.
The volume was very high, with heavy sales days prominent in the last four weeks.
In addition to the broad market sales, Tesla faces a number of headwinds that are likely to affect the TSLA share.
Tesla headwind
Tesla Shanghai is still working on one shift versus the regular three, as Covid restrictions continue to weigh on production since the end of March. It comes as China EV and battery giant BYD (BYDDF), little affected by Covid locking, passes Tesla in car sales. On Friday, BYD began pre-ordering the Seal sedan, a model 3 rival with longer range, faster acceleration but $ 10,000 cheaper. The BYD share jumped 10% to 33.33 last week, and regains its 200-day moving average.
A New York Times documentary airs Friday night, “Elon Musk’s Crash Couse,” highlighting issues with the Tesla Autopilot and Full Self-Driving and Musk’s unfulfilled promises. It comes while NHTSA is investigating another Tesla fatal accident, part of a larger investigation into autopilot-related accidents.
Musk sin Twitter The (TWTR) saga is also negative, as investors fear further TSLA stock sales and an ongoing distraction. Finally, Musk denies allegations of sexual misconduct regarding a Business Insider report on alleged 2018 settlement with a SpaceX employee.
But, as with the general market, what matters to investors is how the stock reacts. Right now, the Tesla share is in a big sale. Everyone who bought a Tesla in the last year should have been gone a long time ago. Long-term investors must decide how long they will have big winners, and when they will make a full or partial profit. There is no easy answer to that.
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Market analysis
The best that can be said about the last rally is that it failed so quickly and decisively. So it offered less temptation than the bear market rally at the end of March.
On Tuesday, all the major indices arranged follow-up days, and confirmed the new stock market rise. There were many reasons to be skeptical and get stocks to buy, so why not demand a “better” FTD? IBD founder Bill O’Neil wanted to make sure he and other investors did not miss new rallies, even if it meant FTDs that ultimately did not work.
Nevertheless, Wednesday’s fantastic sale was a big breaker of expectations. Rallies fail 90% of the time when the major indices close during the lowest of the follow-up days, and all fell well below that level on Wednesday. The official end of the trend was almost a formality.
Weekly charts show steady sales since early April.
On Friday, the S&P 500 was down more than 20% from its peak on January 4 for most of the session until a last-hour rally from its lowest levels.
The Dow Jones and S&P 500 achieved some upswing on Friday, so that it technically marks day one in a new attempt at market rally. Nasdaq closed in the upper half of the daily range, so it qualifies as a “pink rally” day. In theory, the major indices could stage FTDs later next week, provided they do not undermine Friday’s low.
The market environment is extremely tough, and the Federal Reserve is not worried about protecting the Dow Jones this time. Inflation is stifling both consumers and businesses, with growth and employment likely to begin to decline as a result. The Fed is rapidly raising interest rates to cool inflation, which is also contributing to the downturn. Reducing inflation while avoiding a recession would be extremely difficult. Powell and his colleagues may feel that a modest economic downturn is inevitable – maybe even necessary – to reduce demand sufficiently to bring inflation under control.
Chaos enters the supply chain from China’s shutdowns and the Russia-Ukraine war, and there are few economic scenarios that look attractive in the coming months.
At some point, the stock market will praise the negative news and look ahead to a brighter future. But that is not the case today.
When it’s time to sell your favorite stock
What to do now
This is not the time to be brave or smart. It’s a time to be smart and deal with risk.
If you have some energy stocks with decent gains, you can choose to keep a minimal exposure. But even here you may want to take partial or full profits. Investors also have decisions to make about big long-term winners, such as Apple or Tesla shares.
But otherwise, investors should be on the sidelines. It is possible that ZIM, Eli Lilly, Chevron or WWE shares will trigger buy signals in the near future, but any purchases will be extremely risky, while the upside may be limited.
Right now it is better to wait for a better market to develop. And it’s far more than a strong opening – or closing – or even a big day or two.
Even when it’s a new confirmed rally, add exposure slowly and be quick to quit.
Study past bear markets and corrections, including those from the late 1960s to the early 1980s, when inflation was a major threat.
And keep working on watch lists. If you have not updated them in the last week, get ready to make some major overhauls. Many stocks with strong RS lines have broken down. But look for the new relative winners out there.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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