Dow Jones Futures: New Market Rally Attempt Already Underway; Netflix, Tesla earnings ahead
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
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The major indexes had a wild week, with the major indexes breaking to bear market lows before pulling back sharply on Thursday despite a hot inflation report. Stocks resumed selling on Friday as Treasury yields rose.
While a market rally attempt is still ongoing, the major indices are all in major downtrends. Stocks flashing buy signals or setting up suddenly burst. Investors should remain cautious until the market shows real signs of strength.
Tesla (TSLA) and Netflix (NFLX) overall earnings in the coming week. TSLA stock has fallen to a 52-week low. NFLX stock has set up in a bottom 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 sustained injuries 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.
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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The stock market last week
The stock market sold off to fresh bear market levels, rebounded, and then began to slide again in volatile weekly action.
The Dow Jones Industrial Average rose 1.2% in last week’s trading. The S&P 500 index fell 1.5 percent. The Nasdaq composite fell 3.1%. The small-cap Russell 2000 fell 1%.
The 10-year Treasury yield jumped 13 basis points to 4.01%, extending its 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 linked to Fed policy and where interest rates may be headed, rose to 4.5%.
US crude oil futures fell 6.8% to $86.40 a barrel last week. The prices of natural gas fell by 3.8 per cent.
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 3.6% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 1.3%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 5.7% while the VanEck Vectors Semiconductor ETF ( SMH ) plunged 8.2%, both to fresh two-year lows.
The SPDR S&P Metals & Mining ETF ( XME ) fell 3.1% last week. The Global X US Infrastructure Development ETF ( PAVE ) fell 1.5%. The US Global Jets ETF (JETS) rose 5.75%. The 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) rose 0.4%. The Health Care Select Sector SPDR Fund (XLV) advanced nearly 1%.
Reflecting more speculative stock stocks, the ARK Innovation ETF (ARKK) fell 9.4% last week, on the verge of breaking below its March 2020 Covid crash low. The ARK Genomics ETF (ARKG) plunged 7.1%, still above its lowest level in June. 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 rallied on light volume. On Friday, shares reversed sharply from the 50-day line, closing down 7.6%. Shockwave stock remains above its September low, holding a consolidation with a buy point at 315. A decisive move above the 50-day line could trigger an early buy point from a downtrend line. While SWAV stock has been volatile, the relative strength line remains straight at highs.
WOLF stock also hit resistance at the 50-day line on Friday, plunging to near Thursday’s low, which was well below earlier trading from the past two months. The electric car-focused chipmaker is approaching a 200-day line, with a crucial break possible. If Wolfspeed finds support and rebounds, it could soon have a new base.
AEHR stock fell back below its 50-day line on Friday, ending a rough week. The electric car-focused chip gear maker edged higher last week amid blowout earnings, marking an early entry into a consolidation. The official buy point is 19.53. Clearing the October 10 high of 17.61 could offer an aggressive entry.
ALB shares plunged nearly 13% for the week, amid market weakness and analysts’ expectations that lithium prices, at record highs, will fall significantly. A week ago, the Albemarle stock was on the verge of buy signals. Now the ALB share must hold its 200-day line.
DGII shares rose to a record high on October 6, but have sold off since then. On Thursday, the network stock plunged well below its 50-day line, but rallied to close nearly flat. But with shares falling again on Friday, Digi International bounced back from Thursday’s losses. DGII stock needs time to build a new base, but its strong growth and RS line make it worth watching.
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Netflix subscriber switch
Netflix earnings are due Tuesday night, but analysts and investors will be focused on subscribers. They will be particularly interested in Netflix’s subscriber outlook. Last week, Netflix announced that their ad-supported tier will launch on November 3rd, priced at $6.99 a month.
Netflix stock has made a bottom base after crashing from mid-November to mid-May. Shares are trading around the 50-day line, but still below the rapidly falling 200-day. The buy point is 252.09. That’s just slightly above the top of NFLX stock’s earnings gap down April 20, signaling plenty of overhead resistance there.
Tesla revenues
Tesla earnings are set for Wednesday evening. Analysts expect an EPS gain of 53% with revenue up 62% to $22.28 billion. But investors are likely to be interested in future growth prospects. Third-quarter deliveries hit a record 343,800, but that was well below estimates of about 360,000, and about 22,000 vehicles below what Tesla produced in the quarter.
The China backlog has fallen significantly for the not-so-fresh Model 3 and Y, while the competition is increasing dramatically. With Shanghai production set to increase significantly, will Tesla be able to export most of this increase in Q4 and beyond? Or will the electric car giant start cutting prices after raising them significantly over the past two years?
In the meantime, 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 specifications.
Tesla shares fell significantly for a fourth week in a row, finally undercutting the May lows to their worst levels in 16 months. Admittedly, it is not a good time for most growth stocks, especially electric car manufacturers. 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 markets last week. On Thursday, they bounced back strongly from steep intraday losses after a hot inflation report. But on Friday, the major indexes gave back much or all of the previous day’s gains, although they remained above Thursday’s lows.
The Dow Jones, which retook its 21-day moving average on Thursday, fell back on Friday. The S&P 500 and Russell 2000 are hitting resistance at the short-term level, which also coincides with the top of a downtrend line. The Nasdaq never approached its 21 days, stumbling above 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 underway, but has yet to do anything to suggest that a true bottom has been set.
It is difficult to see a sustained market rally taking hold as Treasury yields rise and the Federal Reserve tightens aggressively. The 10-year yield is at a 13-year high, over 4%. The Fed’s rate hike forecasts rose further in the past week amid the warm inflation data.
The past week included positive market reactions to UK government actions as well as the early start of the earnings season. But the coming weeks will see a flood of earnings that could disrupt the market as well as individual stocks and sectors.
There are a number of medical and energy stocks that are holding up well, e.g Eli Lilly (LLY), Humana (HUMMING), Vertex Pharmaceuticals (VRTX), Cardinal health (CAH), Exxon Mobil (XOM) and Devon energy (DVN).
Most growth stocks are badly hurt, including Tesla. Even names like Shockwave and DGII stocks are subject to sharp selling just as they establish themselves.
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What to do now
Investors need to be patient and prepare for tomorrow. While big returns like Thursday’s are exciting and raise the possibility of a market bottom, much more evidence is needed to suggest that is the case.
Even if the market rally gains momentum and carries out a subsequent day, it is not a signal to push all your chips in. An FTD can quickly fail, or the uptrend can simply be another short-term tradable bear market rally.
Investors should focus on preparing for the next uptrend. It’s great to look for stocks with bases above the 50-day line. But also track relatively strong stocks with damaged charts.
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.
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