X The major indices broke through on Friday, returning towards their 50-day moving averages. Several stocks that flashed buy signals on Thursday, such as Axcelis Technologies ( ACLS ), fell on Friday. Some, like Steel Dynamics (STLD), did not. Investors should be cautious about increasing exposure as the market continues to decline. They may need to pull back if they were overexposed or bought extensive stocks in recent days. However, the current “pain” for the market rally could be creating opportunities for big gains, although when is unclear. Some stocks are forming holds, while others are working on bases or possibly following bullish breakouts. Apple ( AAPL ) and Arista Networks ( ANET ) have forged handles in the recent pullback. Apple stock and Arista are no longer as extended from key moving averages. Tesla stock, meanwhile, is trading closely around some key levels. ACLS stock and Steel Dynamics are on the IBD Leaderboard. STLD stock is also on SwingTrader. ANET stock and Tesla (TSLA) are in the IBD 50. Arista and STLD are in the Big Cap 20. Arista Networks was Friday’s IBD Stock of the Day, with Apple and Steel Dynamics the picks the previous two days. Meanwhile, Chinese stocks Pinduoduo (PDD), Baidu (BIDU), BYD (BYDDF), Nio (NIO) and Li Auto (LI) are in the spotlight this week with key news. U.S.-listed Chinese stocks rallied on Thursday, at times sharply, after a report that a U.S.-China control deal was close. The tentative deal, confirmed on Friday, should end fears of a write-off. PDD stock and Baidu in particular have seen bullish action, but are taking gains early next week. Tesla EV competitors BYD, Nio and Li Auto need some work, but are worth watching.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 and Nasdaq 100 futures. ETFs that trade the Dow, S&P 500 and Nasdaq 100 were modestly lower on Friday night as selling pressure continued. Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session. Join IBD’s experts as they analyze stocks that can act in the stock market’s rally on IBD Live
Stock market rally
The stock market’s rally faltered significantly last week with some positive action capped by a pullback on Monday and Friday’s sharp sell-off on Powell’s speech. Powell’s brief but not-so-sweet speech on Jackson Hole on Friday underscored the lesson of the 1970s for policymakers not to let their guard down too quickly. The Fed chief said the US needed a “sustained period of below-trend growth”. That will mean some “pain” for households and businesses, he said, but the alternative is “much more pain.” Bottom line: The Fed is going to raise interest rates significantly and keep them there. The Dow Jones Industrial Average fell 4.2% in last week’s trading. The S&P 500 lost 4%. The Nasdaq composite fell 4.4%. The small-cap Russell 2000 lost 3%. The yield on the 10-year note rose nearly 5 basis points to 3.035%, its fourth straight weekly gain. U.S. crude oil futures rose 2.9 percent to $93.06 a barrel last week.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.65% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) lost 2.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 5.2%. The VanEck Vectors Semiconductor ETF (SMH) fell 5%. The SPDR S&P Metals & Mining ETF ( XME ) is up 3.4% in the past week, with the stock STLD a notable hold. The Global X US Infrastructure Development ETF (PAVE) fell 2.5%. The US Global Jets ETF (JETS) fell 2.1%. The SPDR S&P Homebuilders ETF ( XHB ) fell 5.1%. The Energy Select SPDR ETF (XLE) rose 4.3% and the Financial Select SPDR ETF (XLF) rose 3.6%. Health Care Select Sector SPDR Fund (XLV) lost 4.2% Reflecting the more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 4.1% last week and the ARK Genomics ETF ( ARKG ) gained 0.7%. Tesla stock is a major holding in Ark Invest’s ETFs. Cathie Wood’s Ark also has some shares of BYD and Nio. Five Best Chinese Stocks to Watch Now
Apple Stock Exchange
Apple shares fell 4.6% last week to 163.62. Friday’s 3.8% loss pushed the iPhone giant below its 21-day moving average. AAPL stock now has a 176.25 buy point in its YTD base. The related power line, the blue line on the provided charts, has reached new highs. On August 17, when Apple stock hit a recent high, shares closed 16.1% above the 50-day line and 8.9% above the 200-day line. They are now just 1.7% and 5.9% above their respective levels.
ANET share
Arista stock fell 5.4% to 123.03 last week, just below its 21-day moving average. Shares now have a buy point of 132.97 on a double basis. ANET stock is just 2.7% above its 200-day line versus 10.5% on August 18. The RS line reached a record high on a weekly chart. Arista’s earnings and sales growth accelerated over the past three quarters, 59% and 49%, respectively, in the second quarter.
Tesla stock
Tesla stock fell 2.9% this past week to 288.09, closing slightly below the 21-day line after trying to reach and stay above the 200-day line multiple times. A decisive retracement of the 200-day line, perhaps above 314.64, would provide an aggressive entry. But make no mistake, TSLA stock would still be bottoming out, far from the official buy point of 402.73. Tesla on Friday started selling a new lower-base model Y in Europe, with a shorter range but a much cheaper price. Prices vary significantly from country to country, undercutting the Model 3 in some countries. The next few months will be interesting for Tesla. Its production capacity has increased significantly for its no-longer-fresh range, while competitors – including BYD and Nio – are introducing new models and increasing EVs and overall car performance. Tesla Vs. BYD: Which Booming EV Giant is best to buy?
China stocks
Pinduoduo will report earnings before the open on Monday, while Baidu is ready early on Tuesday. Both PDD and Baidu stock rebounded above the 50-day and 200-day lines on Thursday, offering early entries. Both gave up some of those gains on Friday, but were sharply higher for the week. PDD stock is in a lower base with an official buy point of 68.81. Baidu stock is in a 10-month consolidation with a buy point of 182.70. But stocks are around a long, bearish trend line. Also, investors could see the action from late June as its base, with a buy point of 156.87. BYD will likely report earnings next week after delivering strong preliminary first-half results in mid-July. In the coming days, the Chinese electric vehicle and battery giant will begin deliveries of the Atto 3 in Australia and begin deliveries of the Seal sedan in China. Nio will launch the ES7 SUV on Sunday, with the ET7 sedan to follow a month later. Li Auto will begin deliveries of the L9 luxury hybrid SUV before the end of the month. Li Auto, Nio and Xpeng (XPEV) will report August deliveries on Thursday, September 1, with BYD following a day or two later. BYD stock and LI stock are finding support around their 200-day lines, pulling back significantly from June highs. Nio stock is just below the 50-day line on a bottom base that is below the 200-day. A strong move above the 50-day line would also involve a breakout of a downtrend at the base, offering an early entry. But the 200-day line that is still falling would quickly appear as resistance.
Market Rally Analysis
The stock market rally showed some encouraging action at times during the week, particularly on Thursday. But with Monday’s retreat and Friday’s Powell-led selloff, the major indexes were sold hard for the week. Powell’s hawkish message was no surprise, but the market did not react well. The Dow Jones, S&P 500 and Nasdaq composite fell below their 21-day moving averages and are now not too far from their 50-day lines — as well as some big round numbers for each of the major indexes. The Russell 2000, which was starting to move back toward its 200-day line, also fell hard on Friday. Many of the top stocks that moved higher, especially on Thursday, fell on Friday. ACLS stock, which soared nearly 13% on Thursday to break out, erased the entire gain on Friday. On the positive side, Steel Dynamics rose 0.1% on Friday in a buy zone after jumping 6.6% on Thursday. Since the indices bottomed in June, there is concern that we are in a bear market rally. We still don’t know the answer, but it certainly “holds up” to watch. Commodity stocks are doing relatively well, including energy, fertilizers and steel. The SMH and IGV ETFs are almost back to their 50-day lines as chips and software had a poor end to the week. ARKK is below the 50-day line. Some highly valued former tech leaders may make big new runs, but most of them probably won’t. After bottom fishing rallies of 50%, 100% or more from bear market lows, many have sold off hard in recent weeks. Time the Market with IBD’s ETF Market Strategy
What should we do now
With the Nasdaq down nearly 4%, the previous day’s breakouts will likely struggle. And that was the case for many of Thursday’s markets, although they could bounce back again. However, investors may need to reduce exposure, especially if they have risen in recent days and now have some losses. If the market shows any signs that it is ready to move higher, new buying opportunities will arise, with Apple, Arista and Tesla among the possibilities. But investors should still be cautious, watching for the risks of a quick retracement or resistance at the 200-day line. In the meantime, there is a risk that the market could fall below the 50-day line, or worse. Depending on what followed, such a move could create a…
