Dow Jones futures tilted lower Monday morning, along with S&P 500 futures and Nasdaq futures. China EV makers such as Li Auto rallied after reporting July deliveries
The stock market rally passed an inflection point last week, making a decisive move higher. Investors should be adding to their positions with careful buys, not rushing to ramp up exposure. Markets are showing solid and improving technical action, but also appear to be betting on an optimistic economic scenario.
Apple, Exxon Mobil and Chevron made bullish moves Friday following earnings. Exxon and CVX stock offered early entries above their 50-day lines as they move up the right side of proper bases.
Apple stock became the first megacap to reclaim the 200-day line, while its 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.
Apple filed for a debt offering Monday, but no amount was given.
Onsemi earnings topped views early Monday and guided higher for Q3. But ON stock fell sharply before the open. Shares moved past a trendline entry on Friday, while its RS line is at a new high. That would have been an early buy signal for this leading chip play. But Monday's earnings made that highly risky.
China EV makers Nio, Xpeng and Li Auto reported July deliveries early Monday, all up vs. a year earlier but down vs. June. Nio stock, Xpeng and Li Auto all rose.
China EV and battery giant BYD will likely follow a day or two later. All four are ramping up capacity and starting deliveries of new models in the next few weeks or months. BYD began the sale of the Seal sedan on Friday, taking on the Tesla Model 3.
In other news, Global Payments will buy EVO Payments for $3.3 billion. Builders FirstSource and Jacobs Engineering topped quarterly views, though Jacobs guided lower for its fiscal Q4.
Boeing jumped on reports that the FAA is close to giving final approval for resuming 787 Dreamliner deliveries.
Exxon, Chevron and Tesla stock are on the IBD 50. ON stock is on the IBD Big Cap 20. Exxon was Friday's IBD Stock Of The Day. Apple stock and Chevron are Dow Jones components.
The video embedded in this article looks at Apple, Exxon Mobil and Vertex Pharmaceuticals.
Dow Jones Futures Today
Dow Jones futures fell slightly vs. fair value, despite a lift from BA stock. S&P 500 futures lost 0.2% and Nasdaq 100 futures declined 0.2%.
Crude oil futures fell nearly 4%.
The 10-year Treasury yield rose 2 basis points to 2.66%.
China's official manufacturing index unexpectedly fell to 49 in July from June's 50.2, back below the break-even 50-day level. Analysts had expected a slight uptick to 50.4. Sales at the country's top 100 property developers plunged 39.7% from July 2021 and 28.6% vs. June. A mortgage revolt over unfinished properties is adding to concerns, deterring new buyers.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally fell to start the week, amid a Walmart profit warning and other concerns. But the major indexes moved sharply higher over the last three days, closing at weekly highs.
The Dow Jones Industrial Average rose 3% in last week's stock market trading. The S&P 500 index popped 4.3%. The Nasdaq composite leapt 4.7%. The small-cap Russell 2000 jumped 4.25%.
The 10-year Treasury yield tumbled 14 basis points to 2.64%, the lowest since early April and continuing a steep decline from the June 14 peak of 3.48%. The yield curve is inverted from the 1-year to the 10-year, with even the six-month rate (2.89%) well above the 10-year Treasury yield.
U.S. crude oil futures rose 4.1% to $98.62 a barrel last week after topping $101 a barrel at one point Friday. The front-month oil contract still skidded 6.8% in July.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF leapt 6.1% last week, while the Innovator IBD Breakout Opportunities ETF gained 4.2%. The iShares Expanded Tech-Software Sector ETF rose 2.8%. The VanEck Vectors Semiconductor ETF gained 4.6%.
SPDR S&P Metals & Mining ETF surged 10.3% last week, with steelmakers in particular stepping up. The Global X U.S. Infrastructure Development ETF jumped 8.5%. U.S. Global Jets ETF ascended 2.7%. SPDR S&P Homebuilders ETF climbed 2.9%. The Energy Select SPDR ETF leapt 10.2%, with XOM stock and Chevron two dominant holdings. The Financial Select SPDR ETF rose 2.9%. The Health Care Select Sector SPDR Fund rose a relatively muted 2%
Reflecting more-speculative story stocks, ARK Innovation ETF slumped 2.4% last week and ARK Genomics ETF edged down 0.3%. Tesla stock is still a major holding across Ark Invest's ETFs. Ark also owns some BYD stock and Xpeng.
Five Best Chinese Stocks To Watch Now
China EV Sales
Before Monday's open, China EV makers Li Auto, Nio and Xpeng reported July deliveries. There had been reports that EV and hybrid sales cooled somewhat vs. June, when new subsidies and the end of lockdowns spurred a big bump in sales.
Nio delivered 10,052 vehicles in July. That was up 26.7% vs. a year earlier, but down 22.4% vs. June's 12,961. Nio's CEO said Saturday that a "bottleneck" in parts limited July production of its flagship ET7 luxury sedan from increasing from June's 4,349.
Xpeng deliveries rose 43.3% vs. a year earlier to 11,524, but down 24.7% from 15,295 in June.
Li Auto delivered 10,422 vehicles in July, up 21.3% vs. a year earlier but down 20% vs. June's 13,024 units.
All three are aggressively expanding capacity. Xpeng, which doubled annual production capacity to 200,000 earlier this year, will hit 400,000 by year-end, or 600,000 with double shifts. But the EV maker reportedly already is offering discounts to boost sales. Is that a sign of weaker vehicle pricing for China's EV market in the coming months?
A new EV SUV later this year could boost Xpeng demand. Nio is adding two new models in the third quarter, while Li Auto will begin deliveries of its premium L9 hybrid SUV in late August.
All three stocks have pulled back substantially since late June. LI stock had surged to a 52-week high, so its pullback to the 50-day line looks healthier. In another week, Li Auto will have a new base. Nio stock and Xpeng fell back from their 200-day lines, with XPEV stock decisively below its 50-day line as well now.
Li Auto pared losses to just hold its 50-day line on Friday. Nio and Xpeng turned higher, with Nio stock moving above its 50-day line.
On Monday, Li Auto stock 3.5%. Nio and XPEV stock climbed about 3%.
A government council confirmed that EV and plug-in hybrid vehicles will be exempt from auto purchase taxes next year, according to reports Friday.
EV giant BYD probably reports July sales on Tuesday or Wednesday. There was an unconfirmed local media report that new BYD registrations topped 149,000, which would indicate July sales rose substantially from June's record 134,036 and roughly tripled vs. a year earlier.
BYD continues to rapidly expand capacity, with a huge expansion in Asia and Europe about to kick off. The BYD Seal began sales on Friday, with deliveries set to start in August. It's the first clear case of BYD going head to head with Tesla, with the Seal costing $10,000 less than the Model 3.
BYD stock is not yet trading in the U.S. BYDDF closed Friday slightly below its 50-day line, but could be working on a new base as well after hitting record highs in late June.
Tesla China sales won't be out for a couple of weeks. Tesla Shanghai is undergoing some upgrades that will substantially boost capacity production. Last week Tesla stock ran up 9.15% to 891.47 after soaring 13% in the prior week on strong earnings. It's racing toward its 200-day line but isn't there yet.
Shares rose slightly early Monday.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
Market Rally Analysis
This past week was an inflection point for the stock market rally, which showed a real change of character. Amid the biggest week of earnings season, important economic data and the latest Fed rate hike and guidance, the major indexes ramped higher — even when the news wasn't positive.
After testing their 50-day lines early in the week, the major indexes rebounded to move decisively above that key level. The Nasdaq, which also ran above its early June highs, had its best month since April 2020, when the coronavirus rally began.
The Nasdaq's 50-day line is turning up, another sign that the "trend" is positive.
The market rally is back to a confirmed uptrend.
It's increasingly likely that the market has bottomed. That doesn't necessarily mean that the major indexes will race back to all-time highs, though.
The S&P 500 and Dow Jones still face their early June highs. Above that, the 200-day line looms as a significant test for the market rally.
Goldilocks Economic Scenario?
Investors appear to be betting that the economy is in the midst of a softish landing that will cool inflation sufficiently to spur the Federal Reserve to slow and then stop rate hikes, without crushing the economy and demand. If that outlook changes, markets could struggle.
This coming week, investors will get the ISM US. manufacturing index for July on Monday, followed by June job openings on Tuesday and the July jobs report on Friday.
Another potential issue is energy prices. Rebounding energy prices are good news for XOM stock and other oil and gas plays. Gasoline futures — still well off their June all-time highs — have bounced off recent lows, however, suggesting prices at the pump will soon stop their recent retreat. That could limit inflation's decline, and keep consumers from shifting spending back to other areas.
Aside from energy, some lithium names are looking interesting, though Albemarle and Livent earnings are on tap this coming week. Some steel plays are trying to break downtrends as they reclaim key levels.
Drug and biotech stocks have been pulling back, such as VRTX stock, but many are still acting well. A little strength could offer new entries.
Hershey and other food products stocks are showing strength.
Growth names are moving off the bottom, but are still mostly well off highs.
Time The Market With IBD's ETF Market Strategy
What To Do Now
With the market rally taking big strides in the past few weeks, investors should be adding to their exposure. Do so gradually and look for early entries. There's still the risk that this is a bear market rally that will run out of steam, while sector rotation is still an issue.
There aren't a lot of stocks that are in position to buy. Some of those that do look interesting have earnings on tap in the next few days, such as Vertex or ON stock, complicating new purchases.
With so many big earnings out of the way, the coming wave of results likely will be less meaningful for the whole market, but they'll still be highly relevant for individual stocks and sectors.
Broad-market or sector ETFs are still a good way to ride the current market. Software, chip or other tech ETFs are a way to get at rebounding growth stocks that are still well out of position.
Keep working on your watchlists, looking for emerging leaders.
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