Dow Jones Futures: Market Rally Tops Key Level

Dow Jones futures rose modestly overnight, along with S&P 500 futures and Nasdaq futures, with Netflix subscribers in focus and Tesla results looming. The major indexes rebounded Tuesday above some key levels after hitting resistance on Monday.

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Gains were broad-based, but there were few new buying opportunities.

Netflix (NFLX) jumped overnight on better-than-expected earnings and subscriber additions. Trucking giant J.B. Hunt Transport Services (JBHT) and egg producer Cal-Maine (CALM) also topped EPS views Tuesday night.

Chip-equipment giant ASML (ASML) reports early Wednesday.

Tesla (TSLA) headlines earnings Wednesday night. Tesla earnings should show an increase vs. Q2 2021 but decline substantially vs. Q1, reflecting Covid-related impacts on Shanghai production. Tesla stock climbed 2.1% on Tuesday to 736.59, above its 50-day line and just below some short-term resistance. But TSLA stock is far below its late 2021 peak of 1,243.49.

The video embedded in this article analyzed the market rally action and discussed Li Auto (LI), Flex LNG (FLNG) and Synopsys (SNPS).

Dow Jones Futures Today

Dow Jones futures climbed 0.5% vs. fair value. S&P 500 futures rose 0.6%. Nasdaq 100 futures gained 0.6%, with NFLX stock providing a boost.

Crude oil prices fell slightly.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Elon Musk Loses Round To Twitter

Meanwhile, a Delaware Chancery Court judge granted an expedited trial of the Twitter (TWTR) lawsuit vs. Tesla CEO Elon Musk for his effort to terminate the Twitter takeover. The trial will start in October. Musk had sought a delay into 2023, which would have put pressure on Twitter to settle. While the ruling was not on the merits of the case, it’s a positive indication for Twitter. Musk could end having to pay a major penalty — above a $1 billion breakup fee — or possibly even have to close the $44 billion, $54.20-a-share deal. That could force Musk to sell more TSLA stock.

Twitter stock rose 2.8% to 39.49, moving above its 50-day line for the first time in two months.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally rose solidly at the open and gained momentum, closing with big gains near session highs.

The Dow Jones Industrial Average rose 2.4% in Tuesday’s stock market trading, even with Dow giants IBM (IBM) and Johnson & Johnson (JNJ) falling on earnings. The S&P 500 index popped 2.8%. The Nasdaq composite jumped 3.1%. The small-cap Russell 2000 leapt 3.5%.

U.S. crude oil prices rose 1.6% to $104.22 a barrel. Natural gas futures fell 2.9% amid reports that Russia will restart its Nord Stream natural gas pipeline to Europe as scheduled. Russia’s Vladimir Putin signaled possible new delays late Tuesday, however.

The 10-year Treasury yield rose 6 basis points to 3.02%. The 2-year Treasury yield popped 8 basis points to 3.24%, with the yield curve still inverted from the 2-year and 10-year notes.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 1.4%. The iShares Expanded Tech-Software Sector ETF (IGV) gained 2.9%. The VanEck Vectors Semiconductor ETF (SMH) rallied 4.6%, with ASML stock a notable holding.

SPDR S&P Metals & Mining ETF (XME) advanced 2.7% and the Global X U.S. Infrastructure Development ETF (PAVE) 3.7%. U.S. Global Jets ETF (JETS) ascended 4.1%. SPDR S&P Homebuilders ETF (XHB) stepped up 3.4%. The Energy Select SPDR ETF (XLE) gained 3.1% and the Financial Select SPDR ETF (XLF) 3%. The Health Care Select Sector SPDR Fund (XLV) rose 1.7%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) jumped 4.2% and ARK Genomics ETF (ARKG) 5.2%. TSLA stock is a major holding across Ark Invest’s ETFs.

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Key Earnings

Netflix earnings topped second-quarter views while revenue slightly missed. Netflix subscribers fell by 970,000 vs. company forecasts for a loss of 2 million. The internet TV streaming giant sees a gain of 1 million subscribers in the current quarter, even as it guided low on Q3 earnings. The latest season of “Stranger Things” rolled out at the end of Q2 and start of Q3, likely helping subscriber figures.

Netflix stock jumped 8% in overnight trade. NFLX stock rose 5.6% to 201.63 on Tuesday, picking up in the past few days but still rangebound since the Q1 earnings report.

The Netflix subscriber data is good news for streaming players such as Roku (ROKU) and Disney (DIS).

J.B. Hunt earnings and revenue growth were better than expected, as shipping stocks struggle amid weaker freight rates and demand while diesel prices hit record highs. JBHT stock fell 1% in extended trade. Shares rose 3.8% to 174.46 on Tuesday, after it retook its 50-day line last week.

Fellow trucking firm Knight-Swift (KNX) and rail giant CSX (CSX) are due Wednesday night.

Cal-Maine earnings easily beat fiscal fourth-quarter targets while revenue surged 69%, the fourth straight quarter of accelerating growth, amid strong egg pricing.

CALM stock rose 1% late. Shares fell 1.7% to 52.33 on Tuesday, but bounced from the 21-day line. CALM stock has a 60.05 cup-base buy point, according to MarketSmith analysis, but ideally would form a handle.

ASML earnings are due very early Wednesday morning, kicking off results for semiconductor makers. With chip demand waning on slower PC and smartphone sales, investors see demand for chip equipment weakening as well. ASML stock rose 5.25% to 498.36 on Tuesday, continuing a two-week bounce from 52-week lows but still below the 50-day line.

Few chip-related plays are above their 50-day lines. But chip design software makers Synopsys and Cadence Design Systems (CDNS) are above their 50-day and 200-day lines, close to flashing buy signals.

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Market Rally Analysis

After reversing lower from key resistance on Monday, the market rally rebounded strongly Tuesday in higher volume vs. Monday. The Nasdaq bounced back above its 50-day line and Monday’s intraday high to top its late June and early July highs. So did the small-cap Russell 2000.

The Dow Jones and S&P 500 rose above their 50-day lines and are nearing their late June peaks.

Can the market rally now decisively clear these resistance levels? Doing so would suggest that the market is in at least a tradable rally. Keep in mind that the early June highs are the next big hurdle.

Market breadth was strong Tuesday, but there weren’t many new stocks breaking out or showing strong action. It was a day for bottom fishing, with hard-hit stocks rallying but still a long way below old highs.

Still, it was nice to see the chip (SMH) and software (IGV) ETFs move back above their 50-day lines. As with the major indexes, chips and software stocks have peaked above their 50-day lines briefly at times this year only to quickly fall back.

Medical leaders that reversed lower Monday bounced back Tuesday. AstraZeneca (AZN) moved into a buy zone, albeit in light volume.

Beauty stocks such as elf Beauty (ELF), Ulta Beauty (ULTA) and Olaplex (OLPX) are showing strength, even if their charts aren’t picture perfect.

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What To Do Now

It’s a tricky time. The major indexes are starting to break through resistance. If that continues, investors might feel more confident about gradually increasing exposure. However, earnings season is heating up, with the Federal Reserve meeting next week.

Those news events could propel the market higher or send the indexes sharply lower — or whipsaw back and forth. Individual stocks could plunge on earnings in any case.

So if you do add exposure, be ready to back out quickly.

Definitely work on your watchlists, spending extra time on prime candidates for new entries.

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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