Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally passed an inflection point and took a decisive step higher last week.
Investors should expand their positions with prudent purchases, rather than rushing to increase their exposure. The markets are showing solid and improving technical action, but also seem to be betting on an optimistic economic scenario.
Apple (AAPL), Exxon Mobil (XOM) and Chevron (CVX) made bullish moves after the gains on Friday. Exxon and CVX stocks offered early entries above their 50-day lines as they moved up to the right of the right bases.
Apple stocks became the first mega cap to rewind the 200-day line, while the relative strength line is already at a new high. With earnings risk off the table, investors could use this as a potential aggressive buy, perhaps a place to start a position in AAPL stock.
ON shares moved past a trendline entry on Friday, while the RS line is at a new high. That would normally be a buy signal for this leading chip game. However, All (ON) earnings must be paid before Monday’s opening, making any new purchase very risky.
Chinese EV makers Nioz (NIO), xpeng (XPEV) and Li Auto (LI) should report July deliveries before Monday’s opening. China EV and battery giant BYD (BYDDF) will likely follow a day or two later. All four are ramping up capacity and will start deliveries of new models in the coming weeks or months. BYD began selling the Seal sedan on Friday and took the Tesla (TSLA) Model 3.
Exxon, Chevron and Tesla stocks are on the IBD 50. ON shares are on the IBD Big Cap 20. Exxon was the IBD share of the day on Friday. Apple stock and Chevron are Dow Jones components.
The video embedded in this article looks at Apple, Exxon Mobil and Vertex Pharmaceuticals (VRTX).
Dow Jones Futures Today
The Dow Jones futures open at 6 p.m. ET, along with the S&P 500 futures and the Nasdaq 100 futures.
China’s official manufacturing index fell unexpectedly to 49 in July from 50.2 in June, back below the 50-day break-even level. Analysts had expected a slight increase to 50.4.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live
stock market rally
The stock market rally fell to start the week, amid a walmart (WMT) profit warning and other concerns. But major indices have moved sharply higher 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 shot up 4.3%. The Nasdaq composite rose 4.7%. The small-cap Russell 2000 rose 4.25%.
The 10-year Treasury yield fell 14 basis points to 2.64%, its lowest level since early April, and continued a sharp decline from its June 14 peak of 3.48%. The yield curve has inverted from 1-year to 10-year, with even the six-month rate (2.89%) well above the 10-year rate.
US crude oil futures rose 4.1% to $98.62 a barrel last week, after peaking above $101 a barrel on Friday. The first month oil contract still slipped 6.8% in July.
One of the best ETFs is the Innovator IBD 50 ETF (FFTY) which is up 6.1% last week while the Innovator IBD Breakout Opportunities ETF (BOUT) is up 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.8%. The VanEck Vectors Semiconductor ETF (SMH) gained 4.6%.
SPDR S&P Metals & Mining ETF (XME) rose 10.3% last week, with steelmakers in particular taking the hit. The Global X US Infrastructure Development ETF (PAVE) rose 8.5%. The US Global Jets ETF (JETS) rose 2.7%. SPDR S&P Homebuilders ETF (XHB) climbed 2.9%. The Energy Select SPDR ETF (XLE) rose 10.2%, with XOM stocks and Chevron as two dominant positions. The Financial Select SPDR ETF (XLF) rose 2.9%. The Health Care Select Sector SPDR Fund (XLV) rose relatively modestly 2%
Due to more speculative story stocks, ARK Innovation ETF (ARKK) fell 2.4% last week and ARK Genomics ETF (ARKG) fell 0.3%. Tesla stocks are still a major holding in Ark Invest’s ETFs. Ark also owns some BYD stock and Xpeng.
Five best Chinese stocks to watch right now
EV sales in China
Ahead of Monday’s opening, Chinese EV makers Li Auto, Nio and Xpeng will release July deliveries. There are reports that sales of electric vehicles and hybrids cooled somewhat in July after new subsidies and the end of lockdowns led to a large surge in sales last month.
Nio’s CEO said on Saturday that a “bottleneck” in parts is limiting July production of its flagship ET7 luxury sedan from June’s 4,349.
All three are aggressively expanding 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 that a sign of weaker car prices for the Chinese EV market in the coming months?
A new EV SUV later this year could boost demand for Xpeng. Nio will add two new models in the third quarter, while Li Auto will begin deliveries of its premium L9 hybrid SUV at the end of August.
All three stocks have pulled back significantly since late June. LI shares had risen to a 52-week high, so the pullback to the 50-day line looks healthier. In a week, Li Auto will have a new base. Nio shares and Xpeng fell from their 200-day lines, with XPEV shares now also well below the 50-day line.
Li Auto made up for the losses to hold the 50-day line on Friday. Nio and Xpeng moved higher, with Nio shares moving above the 50-day line.
A governing council has confirmed that electric vehicles and plug-in hybrid vehicles will be exempt from car purchase taxes next year, according to Friday reports.
EV giant BYD is likely to report July sales on Tuesday or Wednesday. BYD continues to rapidly expand capacity, with massive expansion in Asia and Europe about to begin. The BYD Seal began sales on Friday and deliveries were set to begin in August. It’s the first clear case of BYD going up against Tesla, with the Seal costing $10,000 less than the Model 3.
BYD shares are trading just below the 50-day line, but could also be building a new footing after hitting record highs in late June.
The sale of Tesla China will not take place for a few weeks. Tesla Shanghai is undergoing some upgrades that will significantly increase capacity production. Tesla shares rose 9.15% to 891.47 last week after gaining 13% the previous week on strong gains. It’s racing toward its 200-day line, but isn’t there yet.
Tesla vs BYD: Which EV Giant is the Best Buy?
Market rally analysis
Last week was a turning point for the stock market rally, which showed a real change of character. Amid the biggest week of the earnings season, key economic data and the latest rate hike and guidance from the Fed, major indices moved higher, even if the news wasn’t positive.
After testing their 50-day lines at the start of the week, major indices recovered and rose decisively above that key level. The Nasdaq, also above its early June high, had its best month since April 2020, as the coronavirus rally began.
The Nasdaq’s 50-day line is emerging, another sign that the “trend” is positive.
The market rally is back to a confirmed uptrend.
It is becoming increasingly likely that the market has bottomed out. That doesn’t necessarily mean the major indices will race back to all-time highs, though.
The S&P 500 and Dow Jones are still ahead of their early June highs. Above that, the 200-day line looms as a key test for the market rally.
Goldilocks economic scenario?
Investors seem to be betting that the economy is in the midst of a soft landing that will cool inflation enough to prompt the Federal Reserve to slow and then halt rate hikes, without crushing the economy and demand. If those outlooks change, markets could struggle.
This coming week, investors will get the ISM US. July production index on Monday, followed by June job openings on Tuesday and the July jobs report on Friday.
Another potential problem is energy prices. The rebounding energy prices are good news for XOM stocks and other oil and gas games. Gasoline futures – still far from their all-time high in June – have bounced off recent lows, but this suggests pump prices will soon stop their recent pullback. That could limit the decline in inflation and discourage consumers from shifting spending to other areas.
Energy aside, however, some lithium names look interesting Albemarle (ALB) and Levent (LTHM) earnings are on tap this week. Some steel games try to break down trends while regaining key levels.
Drug and biotech stocks rallied, like VRTX stocks, but many are still doing well. A little force could bring in new entries.
Hershey (HSY) and other food stocks show strength.
Growth names move from the bottom, but are still mostly well off the ground.
Time the Market with IBD .’s ETF Market Strategy
What to do now
Now that the market rally has made big strides in recent weeks, investors should increase their exposure. Do this gradually and look for early signups. There is still the risk of this turning into a bear market rally coming to an end, while sector rotation is still an issue.
There are not many stocks that are able to buy. Some of the ones that look interesting have earnings on tap in the coming days, such as Vertex or ON stocks, which makes new purchases difficult.
With so many big gains out of the way, the coming wave of results will likely be less meaningful for the entire market, but they will still be highly relevant to individual stocks and sectors.
Broad market or sector ETFs are still a good way to drive the current market. Software, chip or other tech ETFs are a way to get growth stocks picking up again that are still way out of position.
Keep working on your watchlists, looking for emerging leaders.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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