Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures.
The stock market rally made a brief and weak rebound attempt on Wednesday, with major indexes reaching resistance at the 50-day moving average before pulling back lower.
pure storage (PSTG) headlined overnight gains. Shares of PSTG rose on better-than-expected earnings as well as earnings guidance. The shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day line. PSTG shares may test a buy point of 31.62 from a cup-and-handle basis.
Early Thursday, Chinese electric vehicle startups child (LITTLE BOY), li car (LI) and XPeng motors (XPEV) will report August delivery data. Electric vehicle and battery giant BYD (BYDDF) will probably report on Friday or Saturday. Nio’s shares, along with shares in Li Auto, Xpeng, BYD and Tesla (TSLA) are struggling right now.
With the market rally so weak, investors should be wary of new purchases and act to reduce exposure. But they should be looking for potential leaders for their watch lists.
phase energy (NFE), pinduoduo (PDD) and NBIX stocks are consolidating nicely, with relative strength lines at 2022 highs.
Enphase Energy and PSTG shares are on the IBD 50 list. ENPH shares are also on the IBD Big Cap 20. Neurocrine Biosciences (NBIX) was IBD’s stock of the day on Wednesday.
Dow Jones Futures Today
Dow Jones futures were up 0.1% against fair value. S&P 500 and Nasdaq 100 futures were just above breakeven.
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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The stock market rally tried to live up to its name at the open on Wednesday, but major indices pulled back quickly, closing at session lows.
The Dow Jones industrial average lost 0.9% in trading on Wednesday. The S&P 500 index fell 0.8%. The Nasdaq Composite fell 0.6%. The small-cap Russell 2000 also fell 0.6%.
The price of US crude fell 2.3% to $89.55 a barrel.
The 10-year Treasury yield rose 2 basis points to 3.13%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) and the VanEck Vectors Semiconductor ETF (SMH) fell 0.7%.
SPDR S&P Metals & Mining ETF (XME) decreased 0.8%. SPDR S&P Homebuilders ETF (XHB) fell 1.2%. The Energy Select SPDR ETF (XLE) fell 0.9%. The SPDR Fund of the Select Health Care Sector (XLV) fell 0.6%.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) fell 0.1%, while ARK Genomics ETF (ARKG) rose 1.3%. Tesla shares are a major holding in Ark Invest ETFs. Cathie Wood’s Ark also owns Nio and BYD shares.
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actions to watch
Enphase shares rose 0.2% to 286.44 on Wednesday, still consolidating in recent weeks, holding support at the 21-day moving average. That comes after shares surged on Enphase’s late-July earnings. The blue RS line on the charts provided is holding at all-time highs. That reflects the outperformance of ENPH shares against the S&P 500 index.
Shares of PDD rose 7.2% on Wednesday to 71.30, clearing a base-cup buy point of 68.81, according to MarketSmith analysis. That follows Monday’s 15% rise in earnings from Pinduoduo, with shares briefly breaking above buy point that day. The RS line for Pinduoduo shares is at consolidation highs, right at the best levels since last November. While PDD shares are in a buy zone, they are 28% above the 50-day line.
NBIX shares were up 1.3% at 104.63, bouncing slightly from their 21-day line. The shares have pulled back slightly from the August 9 high of 109.26. That high cap a great profit break. NBIX shares could form a new base but would be actionable by breaking a trend line in the current short consolidation. The RS line is at a 52-week high.
Electric vehicle sales in China
Nio, Li Auto and XPeng report August deliveries ahead of Thursday’s opening. After China’s three electric vehicle startups slightly surpassed 10,000 deliveries in July, Nio and XPeng may miss that mark in August, while Li Auto may not even reach 5,000.
Nio delivered 10,052 electric vehicles in July. On August 28, Nio launched deliveries of the ES7 SUV. The ET5 sedan follows on September 30, after the ET7 luxury sedan in March.
Nio shares rose 0.6% to 19.95 on Wednesday, below the 50-day line. Stocks are working at a basic buying point of 24.53 which would imply breaking above the 200-day line.
Li Auto’s deliveries slumped in August, according to preliminary data, after hitting 10,422 in July. The Li One hybrid SUV, the automaker’s only vehicle until this week, has seen demand suddenly fade. Li Auto says the more upscale L9, another hybrid SUV, is cannibalizing sales. L9 deliveries started on Tuesday and Li Auto forecast 10,000 L9 deliveries in September.
LI shares fell 0.1% to 28.77 on Wednesday, hitting the 200-day resistance line again.
XPeng delivered 11,524 vehicles in July. Production capacity has grown, but the lineup is getting stale. The G9 SUV should start deliveries in the fourth quarter, ready to replace the aging G3.
Shares of XPeng rose 1.4% on Wednesday to 18.52, after hitting a 22-month low on Tuesday.
Meanwhile, BYD is likely to report August sales on Friday or Saturday. July sales of electric and plug-in hybrid vehicles were up 222% from a year earlier to 162,350. There are signs that BYD will set another record in August.
In September, BYD will begin deliveries of the Seal sedan, a rival to the Tesla Model 3 with a starting price of $10,000 less. In the coming days, BYD will begin deliveries of the Atto 3 in Australia, part of a massive international expansion that will include much of Europe.
On Monday, BYD reported that first-half profit tripled compared to a year earlier, with sales up 60%. That sent shares up modestly.
But BYD shares fell 7.8% on Tuesday, followed by a 4.35% loss to 30.75 on Wednesday. Shares of the electric vehicle and battery giant have fallen below the 200-day moving average after hitting a record high of 43.61 on June 28.
The catalyst? by Warren Buffett Berkshire Hathaway (BRKB) said on August 30 that it sold 1.33 million H shares on August 24 in Hong Kong, less than 1% of its large stake in BYD shares. Berkshire still owns just under 8% of BYD, but there are concerns that it will continue to sell shares.
Tesla does not break out sales in China, but industry data suggests local sales topped 30,000 in August. That excludes exports to Europe and elsewhere. More comprehensive industry data for Tesla is coming later in September.
The wait time for a base Model Y model in China has been reduced to 1-4 weeks, according to Tesla’s website. Tesla Shanghai just got a big capacity increase, but has demand kept pace? Li Auto and Xpeng have shown the importance of new or refreshed electric vehicles in China, and the two Tesla vehicles are no longer new.
Tesla shares fell 0.75% to 275.61 on Wednesday. Stocks remain above the 50-day line but fall from the 200- and 21-day moving averages.
Tesla vs. BYD: Which giant EV is the best buy?
Market recovery analysis
The stock market rally is not showing much of a fight. Major indices rose Wednesday morning but quickly hit a wall at the 50-day moving average. They pulled back and eventually closed at session lows.
The Russell 2000 and the S&P 400 MidCap fell back to just above their 50-day line, although they finished slightly below their 10-week averages.
Energy games rallied a bit, especially natural gas stocks, after some heavy losses on Tuesday.
It is important for the Nasdaq to return above the 50 day line, but it certainly would not be a clear signal for the bulls. On the other hand, it would not take a big drop to push the wobbly market rally into a correction.
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What to do now
The market rally remains under pressure for now, but the weakness is obvious. Investors should be looking to take profits and cut losses rather than increase exposure.
Work on your watch lists. Continue to look at possible setups, but be sure to track quality stocks with high relative strength, even if the charts are not yet mature. But stocks can outperform in a weak market until they suddenly stumble. And relative winners can still be outright losers.
Read The Big Picture every day to stay in sync with market direction and major stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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