Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The major indexes and leading stocks suffered heavy losses last week, prompting a shift in the market direction to “correction.”
The S&P 500 and Nasdaq plunged below their 50-day lines and undercut their Sept. 20 lows. Growth stocks had their worst week since the coronavirus crash. While stocks rebounded Friday, the marks day one of a market rally attempt. For now, the market remains in a downtrend.
In such an environment, investors should have limited market exposure or be entirely in cash. Look for stocks with strong relative strength lines.
Netflix (NFLX), Datadog (DDOG), Mosaic (MOS), American Express (AXP), Bill.com (BILL), Quanta Services (PWR) and Paychex (PAYX) all have RS lines at or near highs, reflecting their outperformance vs. the S&P 500 index.
Netflix stock is in a buy zone now. In a healthy stock market rally, investors could buy NFLX, or see early entries on Datadog, Mosaic, Paychex and AXP stock.
As for TSLA stock, it was holding in a buy zone before reporting Q3 deliveries. The RS line for Tesla isn’t at a new high, but is at its best levels in nearly six months.
Tesla stock, Microsoft and Google are on IBD Leaderboard. Microsoft stock and Google also are on IBD Long-Term Leaders. American Express and PWR stock are on SwingTrader. Google stock is on the IBD 50.
The video embedded in this article analyzed the overall stock market action and reviewed Netflix, Mosaic and DDOG stock.
Infrastructure Bill Still In Flux
Meanwhile, the fate of the $1.2 trillion infrastructure bill remains unclear. House progressives are demanding significant progress, at minimum, on a multi-trillion dollar reconciliation tax-and-spend package before voting for the bipartisan infrastructure bill. But Democratic leaders now appear to be trying to get centrist Democrats to agree to a $2 trillion reconciliation package vs. the long-touted $3.5 billion package. President Biden met with Democratic lawmakers Friday, telling them the infrastructure bill won’t pass until there’s “agreement” on the reconciliation bill.
Pelosi on Saturday now said the infrastructure bill needs to pass “well before” Oct. 31, when existing transportation funding expires.
Also, while Congress last week extended government funding into early December, lawmakers still must approve a debt limit hike. Treasury Janet Yellen has pegged Oct. 18 as the likely government default date. Raising the debt limit without Republican votes could complicate the reconciliation package, which in turn could keep the infrastructure bill in a holding pattern.
Dow Jones Futures Today
Dow Jones futures will begin trading at 6 p.m. ET on Sunday. So will S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 235.33 million. Covid-19 deaths topped 4.80 million.
Coronavirus cases in the U.S. have hit 44.46 million, with deaths above 719,000.
New Covid cases are falling sharply in the U.S. and worldwide, but still remain quite high.
Stock Market Rally Attempt Begins
The stock market closed the week with hefty losses, despite Friday’s bounce.
The Dow Jones Industrial Average fell 1.35% in last week’s stock market trading. The S&P 500 index lost 2.2%. The Nasdaq composite gave up 3.2%. The small-cap Russell 2000 dipped 0.3%.
The 10-year Treasury yield, which shot up to nearly 1.57% Tuesday morning, ended the week at 1.465%, up less than a basis point. Friday’s 10-year yield retreat helped buoy stocks at the end of the week.
Growth stocks were hard hit. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged 8.7% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 4.1%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 4.2%, with Microsoft stock a top component. The VanEck Vectors Semiconductor ETF (SMH) skidded 5.8%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 5.1% and ARK Genomics ETF (ARKG) 4.9%. Tesla stock remains the No. 1 holding across ARK Invest ETFs, though Cathie Wood has sold a big chunk of ARK’s stake in recent weeks.
Other sectors were mixed.
SPDR S&P Metals & Mining ETF (XME) rose 2.6% and Global X U.S. Infrastructure Development ETF (PAVE) fell 0.9%. U.S. Global Jets ETF (JETS) ascended 2.5%. SPDR S&P Homebuilders ETF (XHB) gave up 4%. The Energy Select SPDR ETF (XLE) shot up 5.8%. The Financial Select SPDR ETF (XLF) dipped 0.3%. AXP stock is notable XLF holding.
Tesla deliveries totaled 241,300 electric vehicles for the third quarter, up from 201,250 in Q2 and 184,800 in Q1. That also beat upwardly revised estimates for Tesla deliveries of 232,000.
The EV giant delivered 232,025 Model 3 and Y vehicles and 9,275 Model S and X vehicles.
Q3 production totaled 237,823 vehicles.
Tesla sold the Model Y in Europe for the first time, likely boosting sales in that region. Tesla exported most of its Shanghai production in July and August, mostly to Europe, but September looks to be a big figure for local China sales.
Chip shortages may be restraining Tesla production, but if so it’s only slowing the growth in output so far. Meanwhile, global auto production has plunged, boosting Tesla demand and pricing.
Meanwhile, next week will be big for the EV maker.
On Oct. 8, Tesla will begin rolling out FSD Beta to Full Self-Driving owners and subscribers who want to opt into the still-unfinished driver-assist software. Elon Musk said recently that Tesla would roll out Beta at 1,000 drivers per day, starting those who scored highest on a driving safety test. Keep in mind that despite its name, Full Self-Driving is a Level 2, hands-on system.
On Oct. 7, Tesla will hold its annual shareholder meeting at its Austin plant, followed by event at its Berlin plant on Oct. 9. It’s possible Musk will drop hints on when the Austin and Berlin plants will begin production.
But rivals are growing. Lucid Motors (LCID) has begun production of its Lucid Air EV, which goes for $169,000 and boasts a 520-mile range. Deliveries start this month. Rivian has filed for an IPO with its first-to-market electric pickup in production.
Tesla stock edged up 35 cents to 774.74 last week, holding above a 764.55 handle buy point cleared on Sept. 24. The RS line is still off all-time levels, but is back to its April short-term highs.
The major indexes suffered big losses last week. Even worse, the S&P 500 and Nasdaq broke below the 50-day line and recent lows. It was good to see the major indexes rebound on Friday, but it was just one day. The anemic volume, especially on the Nasdaq, was not inspiring.
After rising Treasury yields were a headwind for much of the week, Friday’s sharp drop in the 10-year yield help spur equities.
If the major indexes avoid undercutting Friday’s lows, we could have a follow-through day later this coming week or beyond. But for now, the market remains in a correction. The major indexes are below their 50-day and 21-day moving averages. On the plus side, the Russell 2000 managed to regain its 10-, 21-, 50- and 200-day lines in one fell swoop Friday.
Growth stocks had a horrible week. The FFTY’s weekly decline was the worst since the coronavirus crash. That came on the heels of a strong run for growth stocks.
Growth stocks, or many of them, could take a back seat in the coming weeks.
Energy stocks, financials and travel stocks fared relatively well last week. Energy and bank stocks generally have the most compelling charts, but these sectors are subject to shifts in energy prices and Treasury yields, respectively. Travel stocks may have a longer-run tailwind. With the Covid delta wave seemingly fading in the U.S. and worldwide, more people will be willing to travel, especially with governments lifting or easing restrictions on cross-border travel.
What To Do Now
Investors should keep their exposure at minimal levels, perhaps holding onto core positions in longtime or recent big winners. There is nothing wrong with being entirely in cash at the moment. Being in cash during market corrections preserves your capital, but also your psychological capital. Trying to make money in a correction, can be mentally exhausting and warps your perspective. The simple act of investing heavily during a correction means that you’re not listening to the market. When the market is back in a sustained uptrend, will you be ready to take advantage?
If you do feel compelled to make new buys, keep them small and cut your losses quickly. Be ready to take at least partial profits quickly to help lock in gains amid a weak-to-choppy market environment.
For the most part, investors should be building their watchlists with the relative strength line in mind. Stocks like Netflix, Mosaic, Datadog, Paychex and American Express all have strong RS Lines. Don’t exclude sectors just because you have a bias for highly valued growth stocks. Let the market and your screens guide you to the possible leaders in the next confirmed uptrend.
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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