Dow Jones futures rose modestly early Wednesday, along with S&P 500 futures and Nasdaq futures. Salesforce.com (CRM) headlined key earnings after the close, with Nio and other China EV makers releasing sales data before the open. The stock market rally closed Tuesday mixed after initially retreating, with the Nasdaq holding a key level after last week’s big advance.
The market is in a confirmed uptrend, and investors have a green light to add some exposure. But don’t fall into the trap of buying hot stocks that are extended, such as Schlumberger (SLB) and Albemarle stock.
Salesforce and HP Inc. (HPQ) reported after the close.
Salesforce earnings fell but beat views. Guidance was middling-to-light. But CRM stock jumped 9% overnight. Shares recently hit a two-year low, but the business software giant is still an industry bellwether.
HP earnings also topped views while the printer-and-PC giant raised the low end of its full-year EPS target, though the overall outlook was roughly in line. HP stock edged higher in extended trade. Shares edged up 0.2% in Tuesday’s regular session to 38.84, the fourth straight gain as they rebounded from the 200-day line and reclaimed the 50-day line. HP stock has a 41.57 consolidation buy point, but 39.81 could serve as an early entry.
China EV Sales
Nio stock jumped on Tuesday, along with Xpeng and Li Auto on easing Covid restrictions, improving economic data and various new EV incentives. But all three are in downtrends.
China EV and battery giant BYD (BYDDF) will likely release May sales on Friday, after defying Covid impacts with record sales in April. BYD stock is still in range of an early buy point.
Tesla (TSLA) China sales will be released in another week or two as Shanghai plant production recovers. TSLA stock has rebounded from 2022 lows in recent days.
ALB stock is are on IBD Leaderboard. ADM stock is on SwingTrader.
Dow Jones Futures Today
Dow Jones futures rose 0.6% vs. fair value. CRM stock is a Dow Jones component. S&P 500 futures advanced 0.4% and Nasdaq 100 futures climbed 0.3%.
The 10-year Treasury yield rose 2 basis points to 2.86%.
U.S. crude oil futures rose slightly.
China’s private Caixin manufacturing index rose 2.1 points in May to 48.1, just above estimates. That follows a much-stronger-than-expected official factory gauge. Both were below the 50 level, but pointed to a slower decline as Covid restrictions eased. Shanghai largely ended lockdowns as of June 1.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally
The stock market rally gave up some ground Tuesday, but closed off intraday lows.
The Dow Jones Industrial Average fell 0.7% in Tuesday’s stock market trading. The S&P 500 index declined 0.6%. The Nasdaq composite retreated 0.4%. The small-cap Russell 2000 skidded 1.3%.
U.S. crude oil prices dipped 0.4% to $114.67 a barrel, after getting above $119 briefly. The European Union’s move to partially block Russian crude imports buoyed prices Tuesday morning, along with China easing lockdowns. But OPEC is mulling whether to exclude Russia, which has seen output fall amid import bans and sanctions, from OPEC+ production limits, according to The Wall Street Journal. That could pave the way for Saudi Arabia and the United Arab Emirates, which have some surplus capacity, to pump significantly more.
Natural gas futures sank 6.7%.
The 10-year Treasury yield rose 10 basis points to 2.84%, rebounding from its 50-day line. China reducing Covid restrictions and Fed Gov. Christopher Waller backing “several” more half-point rate hikes helped spur Treasury yields, which had trended lower over several weeks.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 1.75%, while the Innovator IBD Breakout Opportunities ETF (BOUT) slumped 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) ceded 2%. CRM is a major IGV holding. The VanEck Vectors Semiconductor ETF (SMH) edged down 0.4%.
SPDR S&P Metals & Mining ETF (XME) slumped 3.5% and the Global X U.S. Infrastructure Development ETF (PAVE) 1.4%. U.S. Global Jets ETF (JETS) descended 0.6%. SPDR S&P Homebuilders ETF (XHB) declined 1.3%. The Energy Select SPDR ETF (XLE) gave up 1.5%, with SLB stock a notable holding. The Financial Select SPDR ETF (XLF) dipped 0.3%. The Health Care Select Sector SPDR Fund (XLV) declined 1.3%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 2.9% and ARK Genomics ETF (ARKG) 4.1%. Tesla stock is the largest holding across Ark Invest’s ETFs. Ark also owns some BYD stock.
Schlumberger stock on Tuesday briefly rose to 48.67, a three-year high and just extended from the official 46.37 consolidation buy point cleared last Thursday. At that point, SLB stock was more than 15% above its 50-day line. But as crude oil prices erased big morning gains, SLB stock reversed lower, undercutting the official buy point. Investors who bought the oil service giant from early buy points, including 44.61, are still slightly positive, though they may have wanted to take partial profits on Friday or Tuesday morning. But SLB stock shows the risks of buying breakouts, especially when the stock is extended from the 50-day line.
Albemarle stock fell 3.9% to 260.42 on Tuesday after big gains last week and for May. After flashing an early entry around 248 on Thursday, ALB stock was clearly extended from that level Friday. Perhaps the lithium giant will form a handle.
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China EV Sales
EV startups Nio, Xpeng and Li Auto should show improving production and sales from a grim April, when Covid lockdowns slammed output and supply chains. A full recovery may take place in June, as Shanghai greatly eases Covid curbs starting Wednesday.
Li Auto stock rose 3.25% to 25.07 on Tuesday, after reclaiming its 50-day line on Friday. Shares are still in a downtrend, with some distance to their 200-day.
Nio stock climbed about 5% to 17.39, just below its long-sliding 50-day line. Xpeng stock popped 4.4% to 23.50, below its 50-day line as well.
BYD stood out with record sales in April, thanks to its in-house battery and chip production. BYD stock rose 2.8% to 35.80, a 2022 high. Last week, shares cleared an early entry at 34.60 from a not-quite-finished handle. BYDDF stock has a 41.34 buy point from a deep cup base.
Tesla Shanghai production is getting close to normal, but May output was still far below normal. Tesla China sales data won’t come for another week or two as part of industry trade data. Tesla stock dipped 0.2% on Tuesday to 758.26, after hitting 10-month lows on May 24 but rebounding for a 14% weekly gain.
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Market Rally Analysis
The stock market rally didn’t make progress on Tuesday but didn’t lose much ground.
The major indexes fell Tuesday morning, not a big surprise after last week’s strong gains, especially with Treasury yields up sharply to start the week. But the Nasdaq found support at its 21-day moving average while the Dow Jones and S&P 500 never got down that far.
Still, it was a distribution day, with volume rising on the NYSE and Nasdaq.
The stock market rally is in a confirmed uptrend thanks to the Nasdaq’s follow-through day on Thursday. The Nasdaq followed up with another big price gain in rising volume on Friday. The Dow Jones and S&P 500 have not had follow-through days so far, but are closing in on their 50-day moving average.
The 50-day line could be a key test for the stock market rally. This could be where the major indexes reverse back toward lows. A decisive move above the 50-day line would suggest this could be more than a bear-market rally. But there would still be plenty of overhead resistance, with the 200-day line and the late March highs also key levels.
Growth stocks, especially speculative growth, had a tough Tuesday, though China EV and internet stocks generally rebounded. Drugmakers and some big biotechs retreated. Mining and metals stocks, some of which were just showing signs of life, had a tough day.
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What To Do Now
Tuesday’s market action was normal. With few stocks to buy Tuesday, there wasn’t a good reason to increase slim-to-modest exposure.
It’s never a good idea to buy extended stocks, but especially in a tenuous, volatile market. Oil stocks were big movers Tuesday morning. But many were extended from buy points or from their 50-day lines, such as Schlumberger.
While investors should look for opportunities, it’s still a time to be cautious. Keep a level head and work on your watchlists.
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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