Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. The bear market intensified last week, amid growing concerns that the Federal Reserve will be forced to push the economy into a recession to curb inflation.
With the large indices plunging towards their peaks ahead of Covid, investors should be on the sidelines. Do not get excited about one-day returns, like Friday’s technology-led advances. Instead, prepare for the next uptrend.
Not many stocks hold targets, but here are five that do a sensible job: Tesla (TSLA) rival BYD (WANT), Vertex Pharmaceuticals (VRTX), fertilizers and lithium spills SQM (SQM), Eli Lilly (LLY) and Enphase Energy (ENPH).
All have relative strength lines at or near heights. The RS line, the blue line in the accompanying charts, tracks the performance of a stock versus the S&P 500 index.
The BYD share is close to a traditional buying point. The SQM stock finds support on its 50-day line after going around big gains. The ENPH share regained that key level on Friday. The Vertex stock and Eli Lilly are not far below their 50-day lines.
The LLY stock is on the IBD Leaderboard. Eli Lilly and SQM shares are at IBD 50. BYD was Friday’s IBD Stock Of The Day.
The video embedded in this article discussed the weekly market action and analyzed BYD, SQM and Enphase stocks.
Dow Jones Futures today
Dow Jones futures open at 6pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
US markets will be closed on Monday, June 19, but other exchanges around the world will be open. Dow futures are usually traded on Monday.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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The stock market had large weekly losses again, with the large indices falling to the worst levels in more than a year.
The Dow Jones Industrial Average fell 4.8% in last week’s trading. The S&P 500 index fell 5.8 percent. The Nasdaq composite retreated 4.8%. Small-cap Russell 2000 plunged 7.5 percent.
The 10-year government interest rate rose 8 basis points to 3.24%. On Tuesday, the 10-year interest rate shot up to 3.48%, an 11-year high.
US crude oil futures plunged more than 9% to $ 109.56 a barrel last week, taking a seven-week losing streak. Gasoline futures also fell sharply. The prices of natural gas fell.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged just over 12% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) dropped 9.1%. iShares Expanded Tech-Software Sector ETF (IGV) stumbled 5.1%. VanEck Vectors Semiconductor ETF (SMH) lost 8.1%.
SPDR S&P Metals & Mining ETF (XME) sold 10.4% last week. Global X US Infrastructure Development ETF (PAVE) faltered 8.6%. US Global Jets ETF (JETS) fell 8.9%. SPDR S&P Homebuilders ETF (XHB) fell 11.4%. Energy Select SPDR ETF (XLE) crashed 17.2% and Financial Select SPDR ETF (XLF) gave up 4.8%. Health Care Select Sector SPDR Fund (XLV) lost 4.5%, with both Lilly and VRTX equity holdings.
ARK Innovation ETF (ARKK) reflects more speculative history shares, falling 3.3%, recovering well from the lowest levels and still not underperforming its lowest levels at the end of May. ARK Genomics ETF (ARKG) fell just under 1% after setting a new low of two years. Tesla remains a major shareholder across Ark Invest ETFs. Ark has a small position in the BYD share.
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The BYD share rose 4% on Friday, but fell 4.1% to 37.45 for the week, taking a five-week winning streak. The stock has falsified a weekly chart, giving it a buy point of 39.81. With such a deep base – 48% – the risk of a failed eruption is higher. A long handle, especially one that is long enough to be its own tight base, would be constructive.
But with China EV stocks – and US-listed Chinese stocks in general – rising, BYD stocks may not stay in the park long. Nio (NIO), Xpeng (XPEV) and Li Auto (LI) has gone up, with Li Auto approaching heights.
BYD’s internal battery and chip operations, together with massive capital expenditures over the past 18 months, have driven enormous sales growth and allowed the company to avoid problems in the supply chain and China’s Covid shutdown. Sales of electric cars and plug-in hybrids will top Tesla’s sales of electric cars only in the second quarter, and may retain management.
Tesla shares fell 6.7% last week to 650.28, almost below the lowest level at the end of May.
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Enphase shares fell 5.8% to 184.90 last week. Friday’s 8.9% rise pushed the ENPH stock back above the 50-day and 200-day lines. An eruption from a double-bottom base in early June quickly erupted with the 193 point of purchase no longer valid. But a handle has now formed, with a buying point of 217.33 just above the height on June 8. Remember that the Enphase stock has large daily movements. While solar energy shares received sales of oil and gas names on Friday, it may not last.
ENPH shares and SolarEdge Technologies (SEDG) were still among the S&P 500’s best performances on Friday. The SEDG stock took back its 50-day line, working on a cup with handles.
Vertex shares rose 3.2% to 253.09 last week, regaining almost their 50-day line with Friday’s 4.8% pop. A purchase point of 276.10 cups with handles is no longer valid, so the official entry is 292.85. But investors can use 279.23 as an early entry.
Eli Lilly Stock
Eli Lilly shares fell 2.15 to 390.90 last week, hitting resistance on the 50-day line on Friday. A strong pull over the 50-day line could provide an early entry for the LLY stock. A previous buy point of 314.10 is no longer value, but the Lilly share is in the process of forging a new consolidation next door.
SQM shares fell 6% last week to 90.29, but rose on Friday after finding support on their 50-day line. The stock deleted a gain of 27% from a buy point of 90.97 in recent weeks. But a sharp decline from the 50-day line could provide an entry for the SQM stock.
SQM and BYD shares are both key components of the Global X Lithium & Battery Tech ETF (LIT), along with Tesla.
The serious market correction – a bear market for the S&P 500 and Nasdaq – continued to worsen last week.
Friday’s mix action was hardly inspiring. Yes, the Nasdaq and S&P 500 rose on Friday, so it is technically the first day in a stock market rally attempt for these two indices. But they only trimmed steep weekly losses.
The S&P 500, Dow Jones and S&P 500 all reached their worst levels since the end of 2020.
Even if the market climbs and conducts a follow-up day in the near future, there will still be many reasons to be skeptical and get shares to buy.
The oil and gas sector, the one enduring area of market power, plunged last week, with many big winners flashing sales signals. The sector may not be finished, but it was a grade change, with the charts damaged.
While some stocks like BYD and SQM are close to buying points, and other names like Vertex, Lilly or Enphase may be interesting with some solid sessions, many potential executives can take weeks of repair. And this is in a scenario where a new market rally takes a firm grip.
Right now, the stock market is far more likely to continue lower. An economy that is heading for a recession while the Federal Reserve is early in an aggressive tightening cycle is not a good environment for equities.
The most important indices are all close to their peaks before Covid. It can offer a potential level of support, but it does not have to hold. Russell 2000 is already below that key level.
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What to do now
Investors have no reason to be invested, with even energy stocks flashing sell signals. The only possible exception would be modest exposure in long-term winners.
Nevertheless, it is important to stay engaged, follow the market action and prepare for the next upswing.
It’s time to get pencils, not pens, to update your watch lists. Look for stocks with strong relative strength, especially if they have important support levels. But many stocks with strong RS lines will have ugly charts right now.
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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