Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures.
The stock market rally attempt had a strong finish Friday, with the major indexes moving sharply higher on the December jobs report and ISM services index.
ELF Beauty (ELF), SLB (SLB), Caterpillar (CAT), Rio Tinto (RIO), Atkore (ATKR), KLA (KLA)C, United Therapeutics (UTHR), Insulet (PODD), and TJX (TJX) broke out, flashed buy signals or were arguably actionable.
Commercial Metals (CMC) reports before the open. CMC stock jumped last week, rebounding from moving averages and clearing a tight area. But the upcoming CMC earnings added a lot of risk.
After Friday’s market close, Macy’s (M) warned that holiday fourth-quarter sales will be at the low end of views. It sees consumers remaining pressured in 2023. Macy’s stock fell more than 4% late Friday, with several other retailers nudging lower.
ELF Beauty was Friday’s IBD Stock Of The Day. United Therapeutics and RIO stock were selections earlier in the week.
Meanwhile, Tesla (TSLA) shook up the China EV market with sweeping price cuts on Friday in the wake of weaker-than-expected sales there. Tesla stock plunged for the week but did reverse higher on Friday. Tesla’s move may hit its profit margin, but it will help the EV giant counter booming BYD (BYDDF), which is increasingly profitable. BYD stock fell Friday but still had a strong week. China EV startups such as Nio (NIO), Li Auto (LI) and XPeng (XPEV), which have been losing money, face a steeper challenge. Nio stock, Li Auto and Xpeng plunged on Friday but did eke out weekly gains.
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 new stock market rally looked shaky for much of the week, but then rebounded strongly Friday.
Some strong labor market data weighed on the major indexes, but Friday’s jobs report had some soft elements, especially cooler wage growth. Also, the ISM services index showed a big drop, signaling the economy is set to slow significantly.
The Dow Jones Industrial Average rose 1.5% in last week’s stock market trading, along with the S&P 500 index. The Nasdaq composite climbed 1%. The small-cap Russell 2000 climbed 1.8%. All of the indexes’ gains and then some came on Friday.
The 10-year Treasury yield plunged 26 basis points to 3.57%. The odds of a quarter-point Fed rate hike on Feb. 1 are now up to 74%. Markets also are betting on a quarter-point move in March, to a range of 4.75%-5%. Markets aren’t pricing any more hikes, despite Fed forecasts for above 5%.
U.S. crude oil futures tumbled 8.1% to $73.77 a barrel last week. Natural gas crashed 17%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.55% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.9%. The VanEck Vectors Semiconductor ETF (SMH) popped 4.3%, retaking the 50-day line.
SPDR S&P Metals & Mining ETF (XME) leapt 6.1% last week, with a bullish bounce from all its key moving indexes. The Global X U.S. Infrastructure Development ETF (PAVE) popped 3.1%. U.S. Global Jets ETF (JETS) ascended 7.9%. SPDR S&P Homebuilders ETF (XHB) bounced 5.5%. The Energy Select SPDR ETF (XLE) edged up 0.1%, with SLB stock a notable component. The Financial Select SPDR ETF (XLF) climbed 3.45%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.1%, but reclaimed its 50-day line on Friday.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) edged up 0.4% last week and ARK Genomics ETF (ARKG) 0.2%. Tesla stock remains a major holding across Ark Invest’s ETFs. Cathie Wood continued to ramp up TSLA holdings to start 2023.
Stocks To Watch
ELF stock was fairly clear cut. Shares jumped 4.4% to 58.05 on Friday, breaking out from a flat base in more than double normal volume, according to MarketSmith analysis. The relative strength line has been hitting new highs.
SLB stock rose 3.5% to 54.50 Friday, extending a bounce from the 50-day line and clearing an early entry in its consolidation. SLB was formerly known as Schlumberger.
CAT stock popped 3.6% to 248.86, decisively moving into a buy zone from a 6%-deep flat base next to a long, deep consolidation.
RIO stock climbed nearly 3% to 74.07, clearing a cup-with-handle buy point.
KLAC and ATKR stock bounced from their 10-week lines and topped their 21-day averages, offering early entries.
UTHR stock bounced slightly from its 10-week line as it trades extremely tightly. United Thera perhaps could use a little more strength to clear a short downtrend.
PODD stock reclaimed its 50-day line, but backed off to close just below the 21-day line. A move above the 300 level would offer an early entry within a flat base.
TJX stock broke out of a shallow flat base next to a long, deep cup pattern.
Tesla Roils China EV Market
Tesla on Friday slashed prices in China and key Asian markets of Japan, Australia and South Korea. That came in the wake of record fourth-quarter deliveries that missed views for a second straight quarter. With backlogs rapidly falling, Tesla needed to act boldly simply to try to maintain current deliveries.
The Tesla Model 3, facing heavy competition in China, is now roughly $600 more than a similar BYD Seal, essentially wiping out a near-$10,000 gap in just a few months.
The price cuts will hit Tesla’s prized gross margins, the question is how much will they boost Model 3 and Y demand, and for how long.
Tesla’s China price war is aimed in large part at BYD, which is either the world’s largest EV maker or a fast-rising No. 2. But BYD is profitable with solid auto gross margins. Also, its big export push, including to Australia and, on Jan. 31, Japan, may also help insulate it.
A China EV price war may be a bigger concern for EV startups. Nio and XPeng still lose money. Li Auto has been inconsistently profitable.
Keep in mind that Tesla’s second China price cut in 10 weeks could be just the start of vicious discounting. Tesla has a lot of spare capacity while its rivals are all ramping up, especially BYD. And they’re all moving hard into the $30,000-$50,000 range where Tesla resides.
Tesla stock dived 8.2% to 113.06 for the week, continuing a massive sell-off. But shares but did bounce from Friday’s fresh bear market low of 101.81 to end the session up 2.5%. BYD stock fell 1.55% on Friday, but still climbed 7% for the week, above its 50-day line.
Nio, Li Auto and XPEV stock tumbled 4.5%, 9.2% and 15%, respectively, on Friday. But they rose 2%-6% for the week.
Tesla stock obviously looks terrible right now, but none of these EV stocks look good.
Market Rally Analysis
The stock market took a positive step Friday.
The Dow Jones moved above its 50-day and 21-day moving averages after hitting resistance in recent days. The Dow is more relevant in the current market, with industrials, health care and many Dow-style companies leading the way, such as Caterpillar.
The S&P 500 cleared its 21-day line, right up to the 50-day line. The Russell 2000 retook the 21-day but still has a little work to get to the 50-day.
The S&P MidCap 400 moved above its 21-day, 50-day and 200-day moving averages. So did the Invesco S&P 500 Equal Weight ETF (RSP).
The Nasdaq is nearing its 21-day line for the first time in weeks, but is clearly lagging.
Even the Dow still faces its December peak, with the other indexes facing multiple challenges. The S&P 500 getting above its 50-day line would be another big step.
This might signal the start of a more meaningful rally, even if it’s only a brief, tradable rally, but it’s still not clear.
Leading stocks, which have generally looked better than the S&P 500 in recent months, showed strong action Friday, with a number of breakouts and buy signals. But that’s after some frustrating reversals earlier in the week, and more broadly over the past couple of months.
Look to see if the market rally can build momentum in the major indexes and leading stocks. On Thursday, the consumer price index is on tap.
What To Do Now
The stock market rally is looking better, for now. Investors might want to add some exposure, whether in individual stocks or via sector broad market ETFs. But don’t get too excited.
This could be a bullish turn, or just another head fake.
The market could quickly reverse lower. Or, the S&P 500 could rally up to the 200-day or December peaks — and tumble back.
Taking small positions may be the best course initially. Let the market rally draw you in. Be ready to cut losses quickly and still consider taking partial profits quickly.
But it’s definitely a time to build up your watchlists. Make sure you have a diverse list. While growth and tech areas are still lagging with a few exceptions such as KLAC stock, a large number of stocks from a variety of sectors are looking interesting.
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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