Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally fell last week, but the major indexes slashed losses by Friday’s close, with the Nasdaq once again facing a big hurdle.
Dow Jones component UnitedHealth (UNH) soared into a buy zone Friday on strong earnings, propelling other health insurers past buy points, including Centene (CNC) and Humana (HUM). Option Care Health (OPCH) and Shockwave Medical (SWAV) also jumped into buy areas.
It’s a big week for EV giants Tesla (TSLA) and China’s BYD (BYDDF). Tesla earnings are due Wednesday night, with investors looking to see how the automaker weathered Covid shutdowns and other headwinds last quarter. BYD, which announced booming preliminary first-half earnings this past week, will begin sales of the Seal sedan, a Model 3 rival, on Monday. Both Tesla stock and BYD fell significantly last week, and need time to repair.
Chip stocks are nowhere near being actionable. But they are showing some signs of strength amid a long, painful downtrend. That’s a positive sign for a sustained market rally.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Stock Market Rally
The stock market rally fell for most of the week, but recovered most of its losses by the end.
The Dow Jones Industrial Average dipped 0.2% in last week’s stock market trading. The S&P 500 index sank 0.9%. The Nasdaq composite retreated 1.7%. The small-cap Russell 2000 fell 1.4%
The 10-year Treasury yield tumbled 17 basis points to 2.93%. The two-year Treasury yield rose 5 basis points to 3.12%. The inverted Treasury yield curve from the two-year to 10-year is a recession warning, but it’s a little less inverted than mid-week. The 1-year yield, which moved above the two-year yield for much of the week, closed at 3.1%.
U.S. crude oil futures tumbled 6.9% to $95.78 a barrel last week, even after bouncing quite a bit from Thursday’s lows.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 0.9% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipping 0.6. The iShares Expanded Tech-Software Sector ETF (IGV) tumbled 4.4%, with a ServiceNow (NOW) warning taking a toll on the sector. The VanEck Vectors Semiconductor ETF (SMH) popped nearly 3%.
SPDR S&P Metals & Mining ETF (XME) edged down 0.1% last week. The Global X U.S. Infrastructure Development ETF (PAVE) gained 1 cent. U.S. Global Jets ETF (JETS) ascended 1.4%. SPDR S&P Homebuilders ETF (XHB) rose 0.5%. The Energy Select SPDR ETF (XLE) slumped 3% and the Financial Select SPDR ETF (XLF) shed 0.9%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.4%, rebounding late in the week. UNH stock is a major XLV stock holding.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) plunged 5.9% last week and ARK Genomics ETF (ARKG) plunged lost 2.9%, with software and highly valued growth struggling. Tesla stock is a major holding for Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD stock.
Stocks In Buy Zones
UnitedHealth earnings easily beat second-quarter views early Friday. UNH stock jumped 5.4% on Friday to 529.75, bouncing above a 518.80 buy point from what’s either a cup-with-handle base or a double-bottom base with a handle. For much of the week, UnitedHealth stock fell, testing its 50-day line Thursday before rebounding for a slim gain. The relative strength line, the blue line in the charts provided, is at a record high, reflecting UNH stock’s strong outperformance.
UnitedHealth earnings also lifted rivals. Centene stock popped 4.55% to 89.66, back above an 87.44 double-bottom buy point, according to MarketSmith analysis. Humana stock climbed 3.2% to 487.54, reclaiming a 475.54 entry. Both Centene and HUM stock reported earnings later this month.
Option Care stock leapt 7.7% on Friday to 31.58 in heavy volume. That cleared a 31.18 cup-base buy point. But the better entry was 30.41, just above a not-quite handle. The RS line for OPCH stock has surging into new highs. Option Care Health earnings are due July 27.
Shockwave stock rallied 5.2% to 209.90 on Friday, clearing a not-quite handle that offered an early entry of 208.28. That SWAV stock entry also coincides with a long trendline from the November peak. The RS line is already at a new high, even with Shockwave well off highs. However, Friday’s low volume wasn’t ideal.
Tesla Earnings Loom
Tesla earnings are due on Wednesday night. The second quarter was marred by a lengthy Shanghai plant closure due to the city’s Covid lockdown, followed by a lengthy recovery to full production. The Berlin and Austin factories have had a slow ramp up as well. Still, analysts expect Tesla earnings to rise 26% vs. a year earlier, though that will end a five-quarter string of triple digit growth. Sales growth should cool to a 42% annual gain. Both EPS and revenue are expected to fall significantly vs. Q1.
Investors will be looking ahead for guidance for the rest of the year, as well as any hints of future products. CEO Elon Musk said Friday that Tesla vehicle prices, which have soared over the past year, could come down if commodity costs fall.
Tesla stock fell 4.3% to 720.20 last week, slipping just below the 50-day line but holding above the 21-day line. Arguably, TSLA stock has forged a bottoming base, but there isn’t much of a prior uptrend from the May lows.
BYD Seal Of Approval?
The BYD Seal will go on sale officially on July 18. The Model 3 rival, with boasts similar range and dimensions but for $10,000 cheaper, will likely begin deliveries a few days later.
Preorders for the Seal, which began in late May, reportedly are very high.
While Tesla and BYD both can lay claim to the EV crown, this is the first clear case of the automakers going head to head. It won’t be the last. BYD is expected to launch the Sea Lion, a Model Y crossover rival, later this year.
BYD stock plunged 8.6% to 37.74 last week. Shares tumbled on rumors that Warren Buffett’s Berkshire Hathaway (BRKB) was selling some or all of its big, long-time BYD stake. There has been no confirmation of that so far.
BYD stock actually rebounded well off weekly lows of 32.91 after the EV and battery giant report booming preliminary earnings for the first half that were far above views. Analysts expect even-stronger profits and margins in the second half as production continues to race higher and BYD moves into higher-priced, higher-margin vehicles.
Still, the BYD stock chart needs some time to repair and forge a new base.
Market Rally Analysis
Ultimately, the major indexes finished with slim-to-modest losses, but it wasn’t a quiet week.
The stock market rally got off to a bad start, with the Nasdaq falling back Monday from its 10-week line, where it’s hit resistance multiple times. The major indexes kept sliding, but did manage to rebound well off lows Wednesday and Thursday, despite white-hot inflation reports that raised the odds of even-bigger Fed rate hikes. On Friday, stocks bounced strongly, with the Nasdaq, Dow Jones and S&P 500 retaking their 21-day lines.
Despite some big swings, the Nasdaq actually had an inside week, though the other indexes briefly undercut last week’s lows. The Nasdaq is once again close to its 50-day and 10-week averages. Will the tech-heavy composite once again turn tail near these levels? A decisive move above the 10-week — which would probably also mean clearing the late June/early July peaks — would be a positive signal. But there would still be several other key resistance levels along the way.
For now, the market rally remains under pressure, rangebound and highly volatile. It’s a tricky time to be investing.
The macroeconomic climate remains difficult. Wednesday’s CPI report was grim, with a scary headline figure and details suggesting last inflationary pressures even as gasoline prices come down. Th Friday’s economic data was more upbeat. June retail sales and the New York Fed’s Empire State manufacturing index for July were stronger than expected. Crucially, import prices, price gauges in the Empire factory survey and inflation expectations all boded well for future inflation.
The medical sector remains the key area of market strength. While some names wobbled midweek, many rebounded from key levels Thursday while UNH earnings buoyed rivals and others on Friday.
Discount retailers are looking healthy.
More broadly, there are some glimmers of hope and encouraging green shoots.
Chip stocks rallied for a second straight week, helped by strong Taiwan Semiconductor (TSM) earnings and guidance. That’s a positive sign, because it’s hard to have a broad market rally without chips playing a significant role. The semiconductor sector has a big market cap, especially for the Nasdaq, so that heft alone is important. Plus, chips are in almost everything, from PCs to phones to autos. So if chips are doing well, much of the market is likely thriving.
Still, the SMH ETF remains well below its 50-day line while few individual names are above that key level.
Weak earnings and guidance helped push stocks lower early in the week while strong results, including from UnitedHealth, Taiwan Semiconductor and Citigroup, help spur gains later on.
What To Do Now
During the past week, investors may have been shaken out of stocks as they fell significantly. In many cases, those names ultimately bounced back. That’s OK. You follow the rules not to be right every time, but to be right most of the time — and to avoid massive losses. If a stock shakes you out and then flashes a new buy signal, such as UnitedHealth, don’t be afraid to buy it back, even at a higher price.
It’s still a time to keep exposure light. The market rally is near key resistance once again, so a reversal would not be out of character. Until there is clear evidence of a sustained uptrend, cash should still be your No. 1 holding.
But, there are some glimmers of hope. Stay engaged and build up your watchlists so you can be ready to take advantage.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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