Dow Jones futures edged higher early Wednesday, along with S&P 500 futures and Nasdaq futures. IPOs Cava Group, dLocal and Warren Buffett-backed Nu Holdings rallied overnight on earnings, along with Target.
The stock market rally fell significantly Tuesday amid weak China economic data, a banking sector warning and rising Treasury yields. The S&P 500 skidded to just below the 50-day line for the first time in months while the Nasdaq moved back below that key level.
Nvidia pared gains but did extend Monday's big rebound. Google parent Alphabet and Amazon.com fell Tuesday but are still in buy areas. Meta Platforms is finding key support. The other three "Magnificent Seven" stocks — Apple, Microsoft and Tesla — are well below their 50-day lines.
Tesla introduced much-cheaper, shorter-range Model S and Model X variants late Monday, following Model Y price cuts in China Sunday. On Wednesday, Tesla greatly increased Model S and X discounts in China.
Nvidia and META stock are on IBD Leaderboard, with CAVA stock on the Leaderboard watchlist. Microsoft stock is on IBD Long-Term Leaders. Meta Platforms and Google stock are on the IBD Big Cap 20.
The video embedded in this article reviews Nvidia stock, new SwingTrader stock Oracle and On Holding.
Dow Jones Futures Today
Dow Jones futures edged higher vs. fair value. S&P 500 futures were just above break-even and Nasdaq 100 futures rose a fraction.
The 10-year Treasury yield fell a few basis points to 4.20%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
IPO Earnings
Mediterranean-style restaurant chain Cava reported earnings for the first time since the eatery's June IPO, topping views with sales surging 62.5%.
CAVA stock jumped 9% in extended trade. Shares fell 3% to 46.40 in Tuesday's regular session. CAVA stock cleared a 47.89 IPO base buy point on July 12 and got as high as 58.10 before round-tripping.
DLO stock skyrocketed more than 30% on better-than-expected Q2 results and the Uruguay-based payments firm naming Pedro Arnt as co-CEO. Arnt stepped down as CFO of Latin American e-commerce and payments giant MercadoLibre last week. DLocal, which came public in June 2021, leapt 13% to 15.50 on Tuesday, reclaiming the long-sliding 200-day line.
Nu Holdings rose 4% early Wednesday, near a potential breakout, following strong Q2 results. The late 2021 Brazilian payments IPO dipped 0.4% to 7.91 on Tuesday. NU stock has an 8.29 flat-base buy point, with support at the 10-week line.
Wednesday Earnings
Target reported mixed Q2 results and cut full-year guidance early Wednesday, but shares jumped 6% before the open on strong margins. TJX Cos. rose modestly on strong results. JD.com fell solidly despite solid headline results as some metrics missed. Fellow Chinese internet giant Tencent Holdings was not yet trading after a Q2 miss. Chili's parent Brinker International topped on EPS and guided up, but EAT was quiet. TJX stock has been trading tightly just above a 5% buy zone, but the other names need some repair work.
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Stock Market Rally
The stock market rally faced multiple headwinds. China reported a slew of weak economic reports for July, though the central bank unexpectedly cut some rates. Fitch said it might downgrade dozens of U.S. banks. U.S. economic data was mixed, with retail sales strong but manufacturing and housing reports weak.
The Dow Jones Industrial Average fell 1% in Tuesday's stock market trading, closing below its 21-day line for the first time since July 7. The S&P 500 index skidded 1.2%, below its 50-day line for the first time since March 29. The Nasdaq composite sank 1.1%, back below its 50-day. The small-cap Russell 2000 slumped 1.3%, beneath its 50-day for the first time in more than two months.
U.S. crude oil prices fell 1.8% to $80.99 a barrel. Copper futures retreated 1.7%, down eight of the last 11 sessions. China's economic woes, especially in the property sector, are weighing on industrial commodities.
The 10-year Treasury yield rose 4 basis points to 4.22% after spiking to 4.27% Tuesday morning, a fresh 2023 high. That's just below the 15-year high of 4.33% set last October.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 0.8%. The iShares Expanded Tech-Software Sector ETF declined 0.9%, with Microsoft stock and ORCL key members. The VanEck Vectors Semiconductor ETF retreated 1.2%, even with top holding NVDA stock rising.
Reflecting more-speculative story stocks, ARK Innovation ETF gave up 1.75% and ARK Genomics ETF lost 0.75%. Tesla stock is the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF slumped 2.4%. U.S. Global Jets ETF descended 2.2%. SPDR S&P Homebuilders ETF just dipped 0.3%. The Energy Select SPDR ETF lost 2.1% and the Health Care Select Sector SPDR Fund ticked down 0.4%.
The Industrial Select Sector SPDR Fund fell 1.3%, testing its 10-week line.
The Financial Select SPDR ETF slid 1.8%. The SPDR S&P Regional Banking ETF skidded 3.3%. Both are tumbling toward their 50-day line.
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Magnificent Seven Stocks
Of the seven Magnificent Seven stocks, only Nvidia is really living up to the name.
Nvidia stock rose 0.4% to 439.40 on Tuesday, a positive session but closing off intraday highs of 452.68. That followed Monday's powerful 7.1% rebound to reclaim the 50-day line. Wall Street analysts have been pounding the table for the AI chip leader.
NVDA stock moved above its 21-day line and a short-term trendline on Tuesday morning, offering an aggressive entry, but closed below those levels. Investors could use Tuesday's high as a specific entry.
Nvidia earnings are due Aug. 23, though.
Google stock dipped 1.2% to 129.78, but in range from a 127.10 cup-with-handle buy point. The relative strength line has been strengthening even as GOOGL stock has held steady in the past few weeks, reflecting the recent outperformance vs. the S&P 500.
AMZN stock slid 2.1% to 137.67 on Tuesday, but it's still holding in a range after its Aug. 4 earnings gap-up. Amazon stock, not extended from the 50-day line, is actionable above 136.65, which could be viewed as a handle entry to a long, deep consolidation. Investors could use Tuesday's high of 141.28 as another trigger point.
META stock gave up 1.4% to 301.95, finding support at the 10-week line but just below the 21-day line. This is the third 10-week line test since the March breakout, so a 10-week line bounce is less of a buy signal. Investors could buy Meta if it clears the 21-day line and breaks a short downtrend, but ideally it would forge a full-fledged base.
Meanwhile, Apple stock slipped 1.1% and MSFT stock 0.65%, both trying to find their footing after tumbling below their 50-day lines after earnings.
Tesla stock fell 2.8% to 232.96, a two-month low. Shares have been skidding following its Q2 earnings in late July. Shares declined more than 2% early Wednesday, getting close to the top of a prior base. The EV giant nearly doubled inventory discounts on the Model S and X in China to as much as $9,600. Tesla reportedly will begin selling the revamped Model 3 within a month, according to local media.
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Market Rally Analysis
The Nasdaq is back under the 50-day line, though not decisively below that level. Tuesday was an inside day for the Nasdaq, but the inability to hold or extend Monday's gains isn't a good sign.
Worse, the S&P 500 and Russell 2000 have also undercut those key levels.
Market breadth was decisively weak on Tuesday, with the Nasdaq advance-decline line falling significantly in the past few weeks.
The Invesco S&P 500 Equal Weight ETF sank 1.3% on Tuesday, dropping below its 50-day line after edging lower Monday, lagging the S&P 500 both days.
The market rally is still under pressure, fighting to hang on. While a few names like Nvidia and Oracle are advancing and others such as Meta, Google and AMZN stock are holding up, leading stocks overall are damaged, and not just in tech. Homebuilders and the overall housing sector are faring well.
There are signs that the market is oversold, suggesting another bounce could be coming. But a market can always get more oversold, and any rebound could be short-lived, like Monday.
The market rally seems increasingly dependent on Nvidia, with other chip and AI plays struggling. That's not a great sign. That Nvidia earnings report looms large.
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What To Do Now
Not many stocks are flashing buy signals, which is probably for the best. Investors should be in a defensive mindset, at least in terms of new buys, until the market shows renewed strength.
Don't get too excited by a strong open, or even a good day like Monday. In a positive scenario, you should add exposure gradually.
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.
