Dow Jones futures will open Sunday night, along with S&P 500 futures and Nasdaq futures, with House Speaker Kevin McCarthy trying one last time to pass a stop-gap bill to avoid a government shutdown Sunday. Tesla deliveries loom as well.
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A stock market rally attempt is underway, with the major indexes coming off midweek lows. But the rebound has been lackluster at best, especially for the Dow Jones. Friday’s retreat from intraday highs raises the possibility that the rally attempt will end up being a short-lived bounce.
A follow-through day is needed to confirm the new uptrend. Investors should be cautious about adding exposure until then.
Tesla (TSLA) is expected to report third-quarter production and delivery figures early Monday, with analysts rushing to slash forecasts in recent days. Nio (NIO), Li Auto (LI) and XPeng (XPEV) will post September and third-quarter sales on Sunday, with EV giant BYD (BYDDF) due before Monday’s open.
Tesla stock briefly flirted with an aggressive entry on Friday while XPeng arguably did offer an early buy signal. BYD has some work to do while Li Auto and NIO stock need significant repair time.
Tesla stock is on the IBD 50.
Government Shutdown Near
A federal government shutdown is set to begin Sunday, Oct. 1. The GOP-led House and Democrat-led Senate are at odds on spending bills, with razor-thin majorities complicating efforts in both chambers.
The House on Friday rejected a short-term funding bill pushed by Speaker McCarthy, as some 21 GOP hardliners joined Democrats in voting no, despite some spending cuts. The measure would have had no chance in the Senate, but McCarthy’s struggle to get anything through the House is a bad sign for an eventual deal.
On Saturday, House leaders were working on another short-term measure without cuts and some disaster relief. That could make it more palatable to House Democrats. If it passes, the Senate would have to along.
If there’s no deal, up to 3.5 million government workers would go without pay starting Sunday. Key economic data, including the September jobs report due this Friday would not be released.
A short government shutdown would have little lasting economic or market impact, but a lengthy one could have significant implications.
Government shutdown fears were a major reason why Friday morning’s strong market gains faded badly.
Dow Jones Futures
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
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
A stock market rally attempt got started midweek, but the gains have been so-so at best since then.
For the week, the Dow Jones Industrial Average fell 1.2%. The S&P 500 index retreated 0.4% in last week’s stock market trading. The Nasdaq composite ended fractionally higher. The small-cap Russell 2000 rose 0.5%.
Friday marked day three of a rally attempt on the S&P 500 and Nasdaq, it but hasn’t made much headway. A follow-through day could come as soon as Monday, but these major indexes aren’t that far from undercutting recent lows.
The Dow Jones tumbled below its 200-day line on Tuesday, and Friday’s effort to retake that level quickly failed. The Dow didn’t undercut Wednesday’s lows but did finish with its worst close in nearly four months. Technically, the Dow is on day 2 of a rally attempt.
One positive in the past few days has been decent market breadth, but the overall trend has been anemic in the past several weeks.
The 10-year Treasury yield rose 13 basis points to 4.57%. Intraday Thursday, the yield hit 4.69%, the highest since October 2007. The yield surged 75 basis points in the third quarter.
U.S. crude oil futures rose 0.8% to $90.79 a barrel last week, after touching $95 at one point. Crude surged 28.5% for the quarter.
Energy stocks started the week out strong, but gave up much of their gains along with crude prices. Some tech, building and insurance plays look interesting, but need the broader market to cooperate.
At Friday’s highs, a number of stocks flashed buy signals, including Tesla, but most of those fizzled along with the market. A few held up, such as Zscaler (ZS) and PDD Holdings (PDD).
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ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) climbed 1.45% last week. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.2%. The VanEck Vectors Semiconductor ETF (SMH) bounced 2.1%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rebounded 2.2% last week and ARK Genomics ETF (ARKG) edged down 0.2%. Tesla stock is the No. 1 holding for Ark Invest’s ETFs. Cathie Wood’s Ark also owns some BYD stock.
SPDR S&P Metals & Mining ETF (XME) climbed 1.8% last week. U.S. Global Jets ETF (JETS) descended 0.8%. SPDR S&P Homebuilders ETF (XHB) edged up 0.5%. The Energy Select SPDR ETF (XLE) rose 1.2%. The Industrial Select Sector SPDR Fund (XLI) dipped 0.4%. The Financial Select SPDR ETF (XLF) declined 1.5%.
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Tesla Deliveries
The EV giant is expected to report third-quarter production and deliveries before Monday’s open. Tesla deliveries are expected to fall from Q2’s record 466,140, with analysts belatedly rushing to cut optimistic forecasts in the final days. Production likely fell sharply vs. Q2, as Tesla had temporary shutdowns and generally slowed output. Some of that reflected manufacturing upgrades for the refreshed Model 3 and the upcoming Cybertruck, but it appears Tesla was seeking to pare down swelling inventories.
Tesla bulls are already looking past Q3 deliveries, betting on a strong Q4 recovery and the possible Cybertruck launch.
Tesla stock rose 2.2% to 250.22 last week. Shares briefly cleared the 50-day line on Friday before paring gains. A decisive move above the 50-day could offer an early entry. TSLA stock has a 278.98 cup-with-handle buy point, according to MarketSmith.
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China EV Deliveries
EV pioneers Li Auto, Nio and XPeng will report September and Q3 deliveries on Sunday.
Li Auto should lead the way again with another record month, though there have been some rumblings that the hybrid SUV maker is offering discounts, joining the EV price war at last.
XPeng is riding demand for the G6 crossover, a Tesla Model Y rival, as well as the just-refreshed G9 SUV with a lower price.
Nio may struggle to top 20,000 deliveries in September.
Li Auto stock plunged 9.2% last week to three-month lows on discounting fears. Nio stock rebounded for a 5.9% weekly gain, but is well below key moving averages. XPEV stock surged 11.7% to 18.36, retaking the 50-day line and crossing a downward-sloping trendline. Investors might wait for a less-aggressive entry, such as 19.96. The official buy point is 23.62.
Meanwhile, BYD will likely report yet another record month before Monday’s open, with new models and booming exports leading the way. The EV and battery giant’s overall vehicle sales, including plug-in hybrids, have raced past Tesla’s over the past year. BYD also is rapidly closing the gap vs. Tesla in all-electric BEV sales. It’ll likely fall just short of its U.S. rival in Q3, but could seize that crown in Q4.
BYD stock fell 1.7% to 30.89, trading between the 50-day and 200-day lines. The official buy point is 36.27, but it could have an early entry with a decisive move above a falling 50-day.
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What To Do Now
Friday’s fade shows why investors shouldn’t rush to buy stocks at the first uptick. Yes, a market rally attempt is underway, but really hasn’t shown evidence that it’s anything more than a brief bounce within a correction.
A follow-through day could still come in the next few days, especially if a government shutdown is avoided or ends quickly. So investors should spend this weekend running screens and getting your watchlists in shape. Focus on stocks with strong relative strength lines.
Remember, not every FTD succeeds. So remain patient. If this ends up being a strong market rally that lasts several weeks or months, you’ll have plenty of opportunities to take advantage. If the market correction hits new lows, you’ll be glad you’re largely on the sidelines.
One way to keep an open mind is to look for possible shorting opportunities, even if you rarely short. That can help you keep perspective as leading stocks move up toward the 50-day line and other key levels.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on X/Twitter at @IBD_ECarson and Threads at @edcarson1971 for stock market updates and more.
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