Dow Jones futures rose slightly on Sunday night, along with S&P 500 futures and Nasdaq futures.
The stock market’s rally attempt ended strongly on Friday, with major indices moving sharply higher on the December jobs report and the ISM services index.
ELEVEN beauty (ELEVEN), SLB (SLB), Caterpillar (CAT), Rio Tinto (RIO), Atkore (ATKR), KL (KLAC), United Therapeutics (UHR), Insulation (PODD), and TJX (TJX) broke out, flashed buy signals or were demonstrably useful.
Commercial metals (CMC) reports for the opening. CMC shares jumped last week, recovering from moving averages and clearing a tight area. But the upcoming CMC earnings came with a lot of risk.
After the closing of the Friday market, Macy’s (m) warned that sales in the fourth quarter will be on the low side during the holiday season. It sees that consumers will remain under pressure in 2023. Macy’s inventory fell more than 4% late Friday, as several other retailers pushed lower.
ELF Beauty and CAT stock have joined IBD ranking on Friday, with UTHR stocks on the Leaderboard watch list. ATKR Stocks and Commercial Metals are on their way IBD 50 list. KLAC stock is on the IBD Big Cap 20.
ELF Beauty was from Friday IBD stock of the day. United Therapeutics and RIO stocks were selected earlier this week.
In the meantime, Tesla (TSLA) shook up the Chinese EV market on Friday with sweeping price cuts in the wake of weaker-than-expected sales there. Tesla shares fell for the week, but reversed higher on Friday. Tesla’s move may hit its profit margin, but it will help the EV giant bounce back BYD (DOORDDF), which is becoming increasingly profitable. BYD shares fell Friday, but still had a strong week. Chinese EV startups like Nio (NIO), li car (LI) and XPeng (XPEV), who have lost money, face a greater challenge. Shares of Nio, Li Auto and Xpeng plummeted on Friday but posted weekly gains.
Dow Jones Futures Today
Dow Jones futures rose 0.15% from fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures rose 0.3%.
Stock market rally
The new stock market rally seemed shaky for much of the week, but recovered strongly on Friday.
Some strong labor market data weighed on major indices, but Friday’s jobs report had some soft elements, especially cooler wage growth. Also, the ISM services index showed a large decline, indicating that the economy will slow significantly.
The Dow Jones Industrial Average rose 1.5% last week trading on the stock exchange, along with the S&P 500 index. The Nasdaq composite climbed 1%. The small-cap Russell 2000 climbed 1.8%. All the index gains and then some came on Friday.
The 10-year Treasury yield fell 26 basis points to 3.57%. The probability of a quarter point rate hike by the Fed on February 1 is now 74%. Markets are also betting on a quarter-point move in March to a range of 4.75%-5%. Markets are not pricing in further hikes, despite Fed forecasts of more than 5%.
US crude oil futures plunged 8.1% to $73.77 a barrel last week. Natural gas crashed 17%.
Among growth ETFsthe Innovator IBD 50 ETF (FFTY) rose 0.55% last week, while the Innovator IBD Breakout Opportunities ETF (BOLT) increased by 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) decreased by 0.9%. The VanEck Vectors Semiconductor ETF (SMH) boomed 4.3% and retook the 50-day mark.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) rose 0.4% last week and ARK Genomics ETF (ARKG) 0.2%. Tesla stock remains an important position in Ark Invest’s ETFs. Cathie Wood continued to expand TSLA holdings to begin in 2023.
SPDR S&P Metals & Mining ETF (XME) jumped 6.1% last week, with a bullish bounce from all major moving indices. The Global X US Infrastructure Development ETF (PAVE) popped 3.1%. US Global Jets ETF (JETS) increased by 7.9%. SPDR S&P Homebuilders ETF (XHB) bounced 5.5%. The Energy Select SPDR ETF (XLE) rose 0.1%, with SLB stocks a notable component. The Financial Select SPDR ETF (XLF) climbed 3.45%. The Care Select Sector SPDR Fund (XLV) fell 0.1%, but reclaimed its 50-day line on Friday.
Stocks to watch
ELF stock was pretty clear. Shares rose 4.4% to 58.05 on Friday, breaking out of a flat base into more than double normal volume, according to MarketSmith Analysis. The relative strength line has reached new heights.
SLB shares rose 3.5% to 54.50 on Friday, extending the 50-day line gains and eliminating an early entry into consolidation. SLB was formerly known as Schlumberger.
CAT shares rose 3.6% to 248.86, decisively entering a buy zone from a 6% low flat base next to a long, deep consolidation.
RIO share climbed almost 3% to 74.07, clearing a cup-with-handle buy point.
KLAC and ATKR stocks bounced off their 10-week lines and outperformed their 21-day averages, with early entries.
UTHR stock bounced slightly off its 10-week line as it trades extremely tight. United Thera could perhaps use a little more power to break a short downtrend.
PODD stock retook its 50-day line, but retreated to close just below the 21-day line. A move above the 300 level would provide an early entry within a flat base.
TJX stock broke from a shallow flat base next to a long, deep one cup pattern.
Tesla Roils China EV Market
Tesla cut prices in China and key Asian markets of Japan, Australia and South Korea on Friday. That came in the wake of record fourth-quarter deliveries that missed views for the second consecutive quarter. With backlogs rapidly decreasing — essentially zero in China — Tesla had to act boldly to try to maintain current deliveries.
Given some big incentives at the end of the year, some of which were extended into 2023, the price cuts in China may not be as big as they first appear. Still, facing tough competition in China, the Tesla Model 3 is now worth about $600 more than a comparable BYD stamp, effectively wiping out a nearly $10,000 gap in just a few months.
The price cuts will hit Tesla’s prized gross margins, the question is how much they will boost demand for the Model 3 and Y, and for how long.
Tesla’s price war in China is in large part aimed at BYD, either the world’s largest EV maker or a rapidly rising No. 2. But BYD is profitable with solid auto gross margins. Also, its heavy export pressure, including to Australia and, on January 31, Japan, may also help to isolate it.
A Chinese EV price war may be a bigger concern for EV startups. Nio and XPeng are still losing money. Li Auto has been inconsistently profitable.
Keep in mind that Tesla’s second price cut in China in 10 weeks could be just the start of some brutal discounts. Tesla has a lot of spare capacity while its rivals are all growing, especially BYD. And they’re all going hard into the $30,000-$50,000 range where Tesla resides.
Tesla shares plunged 8.2% to 113.06 for the week continuing a massive sell-off. But shares did bounce off Friday’s fresh bear market low of 101.81 to end the session up 2.5%. BYD shares fell 1.55% on Friday, but still climbed 7% for the week, above the 50-day mark.
Shares of Nio, Li Auto and XPEV fell 4.5%, 9.2% and 15% respectively on Friday. But they were up 2%-6% for the week.
Tesla stocks look terrible right now, of course, but none of these EV stocks look good.
Analysis of the market rally
The stock market took a positive step on Friday.
The Dow Jones rose above its 50-day and 21-day moving averages after encountering resistance in recent days. The Dow is more relevant in today’s market, with industrials, healthcare and many Dow-like companies leading the way, such as Caterpillar.
The S&P 500 scrapped its 21-day line down to the 50-day line. The Russell 2000 recaptured the 21 days but still has some work to do to make it to the 50 days.
The S&P MidCap 400 rose above its 21-day, 50-day and 200-day moving averages. So was the Invesco S&P 500 Equal Weight ETF (RSP).
The Nasdaq is approaching its 21-day line for the first time in weeks, but is clearly lagging.
Even the Dow is still facing its December peak, while the other indices face multiple challenges. If the S&P 500 moves above the 50-day mark, that would be another big move.
This could be the start of a more meaningful rally, even if it’s just a short, tradable rally, but it’s still not clear.
Leading stocks, which have generally outperformed the S&P 500 in recent months, saw strong action on Friday, with a number of breakouts and buy signals. But that’s after some frustrating reversals earlier this week, and more generally over the past few months.
See if the market rally can build momentum in the major indices and leading stocks. The consumer price index is on tap on Thursday.
What to do now
The stock market rally looks better for now. Investors may want to add some exposure, whether through individual stocks or through industry-wide market ETFs. But don’t get too excited.
This could be a bullish turn, or just another head fake.
The market could turn lower soon. Or the S&P 500 could rise to the 200-day or December highs — and fall back.
Taking small positions may be the best way to go initially. Let yourself be carried away by the market rally. Be prepared to cut losses quickly and still consider taking partial profits quickly.
But it’s definitely a time to build your watchlists. Have a varied list. While growth and technology areas continue to lag, with a few exceptions like KLAC stocks, a variety of stocks from different industries look interesting.
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 market updates and more.
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