Futures on the Dow Jones will open Sunday night, along with futures on the S&P 500 and Nasdaq. The stock market rally passed an inflection point, making a decisive move higher last week.
Investors should add to their positions with cautious purchases, without rushing to increase their exposure.
Apple (AAPL), Exxon Mobil (XOM) and Chevron (CVX) made bullish moves on Friday after earnings. Exxon and CVX stocks offered early entries above their 50-day lines as they rallied to the right side of appropriate bases.
Apple stock has become the first mega-cap to reclaim the 200-day line, when its relative strength line is already at a new high. With profit risk off the table, investors could use this as a potential aggressive buy, perhaps a place to start a position in AAPL stock.
The ON stock broke above a trendline entry on Friday, while its RS line is at a new high. This would usually be a buy signal for this leading token game. However, Onsemi (ON) earnings are due before Monday’s open, making any new purchases very risky.
Chinese electric vehicle manufacturers Nio (NIO), Xpeng (XPEV) and Li-Auto (LI) is expected to report July deliveries ahead of Monday’s open. The Chinese electric vehicle and battery giant BYD (BYDDF) will likely follow a day or two later. All four are increasing their capacity and starting deliveries of new models in the coming weeks or months. BYD began sales of the Seal sedan on Friday, taking the You’re here (TSLA) Model 3.
Exxon, Chevron and Tesla stocks are on the IBD 50. ON stocks are on the IBD Big Cap 20. Exxon was the IBD stock of the day on Friday. Apple and Chevron stocks are components of the Dow Jones.
The video embedded in this article examines Apple, Exxon Mobil and Vertex Pharmaceuticals (VRTX).
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market recovery fell at the start of the week, in a walmart (WMT) profit warning and other concerns. But the major indexes have risen sharply over the past three days, closing at weekly highs.
The Dow Jones Industrial Average rose 3% in stock trading last week. The S&P 500 index jumped 4.3%. The Nasdaq composite jumped 4.7%. Small cap Russell 2000 jumped 4.25%.
The 10-year Treasury yield fell 14 basis points to 2.64%, the lowest since early April and continuing a steep decline from the June 14 high of 3.48%. The yield curve is inverted from the 1 year to the 10 year, with even the 6 month rate (2.89%) well above the 10 year Treasury yield.
U.S. crude oil futures rose 4.1% to $98.62 a barrel last week after rising above $101 a barrel at one point on Friday. The first-month oil contract slipped another 6.8% in July.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) jumped 6.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.8%. ETF VanEck Vectors Semiconductor (SMH) gained 4.6%.
The SPDR S&P Metals & Mining ETF (XME) jumped 10.3% last week, with steelmakers in particular stepping up. The Global X US Infrastructure Development ETF (PAVE) jumped 8.5%. The US Global Jets ETF (JETS) climbed 2.7%. The SPDR S&P Homebuilders ETF (XHB) climbed 2.9%. ETF Energy Select SPDR (XLE) jumped 10.2%, with XOM and Chevron shares two dominant holdings. The Financial Select SPDR ETF (XLF) rose 2.9%. The SPDR healthcare sector fund (XLV) rose a relatively moderate 2%
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 2.4% last week and ARK Genomics ETF (ARKG) edged down 0.3%. Tesla stock is still a major holding in Ark Invest ETFs. Ark also owns BYD and Xpeng shares.
Five best Chinese stocks to watch now
Sales of electric vehicles in China
Ahead of Monday’s opening, Chinese electric vehicle makers Li Auto, Nio and Xpeng will release July deliveries. There are reports that sales of electric and hybrid vehicles cooled somewhat in July after new subsidies and the end of lockdowns spurred a surge in sales last month.
All three greatly increase their capacity. Xpeng, which doubled its annual production capacity to 200,000 earlier this year, will reach 400,000 by the end of the year, or 600,000 with double shifts. But the EV maker is reportedly already offering discounts to boost sales. Is this a sign of lower vehicle prices for the Chinese EV market in the coming months?
A new EV SUV later this year could boost Xpeng demand. Nio is adding two new models in the third quarter, while Li Auto will begin deliveries of its L9 premium hybrid SUV in late August.
All three stocks have fallen significantly since late June. LI stock had hit a 52-week high, so its pullback to the 50-day line looks healthier. In another week, Li Auto will have a new base. Nio and Xpeng shares retreated from their 200-day lines, with XPEV stock also significantly below its 50-day line.
Li Auto cut losses to only hold its 50-day line on Friday. Nio and Xpeng rose, with Nio stock breaking above its 50-day line.
A government council has confirmed that electric and plug-in hybrid vehicles will be exempt from car purchase taxes next year, according to information released on Friday.
Electric vehicle giant BYD likely announces July sales on Tuesday or Wednesday. BYD continues to rapidly increase capacity, with huge expansion in Asia and Europe about to kick off. The BYD Seal began sales on Friday, with deliveries expected to begin in August. This is the first clear case of BYD going head-to-head with Tesla, with the Seal costing $10,000 less than the Model 3.
BYD stock is trading just below its 50-day line, but could also be working on a new base after hitting record highs in late June.
Tesla China sales won’t be over for a few weeks. Tesla Shanghai is undergoing upgrades that will significantly increase production capacity. Tesla stock rose 9.15% last week to 891.47 after climbing 13% the previous week on strong earnings. He’s racing towards his 200-day line but isn’t there yet.
Tesla vs. BYD: Which electric giant is the best buy?
Market rally analysis
Last week was an inflection point for the stock market rally, which showed a real change in character. Amid the biggest week of earnings season, major economic data and the Fed’s latest rate hike and forecast, major indexes soared even when the news was not positive.
After testing their 50-day lines earlier in the week, the major indices rebounded decisively above this key level. The Nasdaq, which also topped its early June highs, had its best month since April 2020, when the coronavirus rally began.
The Nasdaq’s 50-day line is moving up, another sign that the “trend” is positive.
The market rally resumes a confirmed uptrend.
It is increasingly likely that the market has bottomed out. This does not necessarily mean that the major indexes will return to all-time highs.
The S&P 500 and Dow Jones are still facing their early June highs. Above that, the 200-day line looms as a significant test for the market rally.
Investors seem to be betting that the economy is in the midst of a soft landing that will calm inflation enough to prompt the Federal Reserve to slow and then halt rate hikes. If that outlook changes, markets could struggle.
Next week, investors will receive the June job offers and the July employment report. Are labor markets beginning to relax noticeably?
Another potential problem is energy prices. The rebound in energy prices is good news for XOM stocks and other oil and gas stocks. Gasoline futures – still well below their all-time June highs – have bounced off recent lows, suggesting pump prices will soon end their recent pullback. This could limit the fall in inflation and prevent consumers from redirecting their spending to other areas.
Energy aside, some lithium names sound interesting, however Albemarle (ALB) and Livent (LTHM) revenues are on the agenda this week. Some steel plays are trying to break downtrends as they recover key levels.
Pharmaceutical and biotech stocks fell, such as VRTX stock, but many are still doing well. A little strength might offer new entries.
Hershey (HSY) and other food stocks are showing strength.
Growth names move away from the bottom, but mostly stay away from the tops.
Time the Market with IBD’s ETF Market Strategy
What to do now
With the market rally gaining momentum over the past few weeks, investors should increase their exposure. Do it gradually and look for the first entries. There is always the risk that this is a bearish rally that runs out of steam, while sector rotation is still an issue.
There are not many stocks in a long position. Some of the ones that look good have revenue on the way in the next few days, like Vertex or ON stock, which makes new purchases difficult.
With so many big profits to come, the wave of results ahead is likely to be less meaningful for the overall market, but it will still be highly relevant to individual stocks and sectors.
Consumer or sector ETFs are always a good way to surf in today’s market. Software, chip or other tech ETFs are a way to bounce off growth stocks that are still well out of position.
Keep working on your watchlists, looking for emerging leaders.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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