Dow Jones futures rose strongly Monday night, along with S&P 500 futures and Nasdaq futures. The Bitcoin price rebounded back above the key $20,000 level after tumbling to a fresh 18-month low on Saturday.
The bear market intensified last week, amid growing concerns that the Federal Reserve will be forced to drive the economy into a recession in order to rein in inflation.
With the major indexes plunging toward their pre-Covid peaks, investors should be on the sidelines. Don’t get excited by one-day rebounds, such as Friday’s tech-led advance. Instead, prepare to take advantage of the next sustained uptrend.
Stocks Holding Up
Not many stocks are holding up, but here are five that are doing a reasonable job: Tesla (TSLA) rival BYD (BYDDF), Vertex Pharmaceuticals (VRTX), fertilizer and lithium play SQM (SQM), Eli Lilly (LLY) and Enphase Energy (ENPH).
All have relative strength lines at or near highs. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
BYD stock is near a traditional buy point. SQM stock is finding support at its 50-day line after round-tripping big gains. ENPH stock regained that key level on Friday. Vertex stock and Eli Lilly aren’t far below their 50-day lines.
The video embedded in this article discussed the weekly market action and analyzed BYD, SQM and Enphase stock.
Dow Jones Futures Today
Dow Jones futures rose 1.2% vs. fair value. S&P 500 futures climbed 1.35% and Nasdaq 100 futures jumped 1.45%.
The 10-year Treasury yield climbed 5 basis points to 3.29%.
Crude oil prices rose 2%.
U.S. markets were closed Monday in observance of the Juneteenth holiday, but other exchanges around the world are open.
Federal Reserve Gov. Christopher Waller said Saturday that he favors another 75-basis-point rate hike at the late July Fed meeting. Markets see a high likelihood of that currently, but it’s not fully priced in.
While the Fed is ramping up rates, it’s also starting to reduce its balance sheet. But St. Louis Fed President James Bullard said Monday that the central bank doesn’t have to as far with this quantitative tightening as some assume.
Bitcoin Above $20,000
The Bitcoin price traded above the psychologically key $20,000 level on Monday night. The most-popular cryptocurrency had rebounded to $21,000 in the morning.
On Saturday, Bitcoin plunged below $20,000 to $17,601.58, a fresh 18-month low. That also undercut its December 2017 peak of $18,942.
The price of Bitcoin peaked at $68,990.90 in November 2021.
Other cryptocurrencies have crashed as much or more than Bitcoin in the “crypto winter.”
That includes Dogecoin, which skyrocketed to 74 cents in early 2021 and undercut 5 cents on Saturday. Dogecoin rebounded as Tesla CEO Elon Musk tweeted Sunday that he is still buying it. Dogecoin got above 6 cents earlier but has drifted below that.
Investors have fled risky assets generally amid inflation and recession fears, but crypto seems to be diverging bearishly vs. speculative growth stocks. After Bitcoin and the Nasdaq peaked in November, the cryptocurrency tracked ARK Innovation ETF (ARKK) closely for several months. But ARKK hasn’t undercut its late May lows, while Bitcoin has accelerated its losses. In recent weeks, several crypto lenders have halted withdrawals while so-called stablecoins have become untethered.
The stock market had big weekly losses once again, with the major indexes tumbling to their worst levels in more than a year.
The Dow Jones Industrial Average sank 4.8% in last week’s stock market trading. The S&P 500 index tumbled 5.8%. The Nasdaq composite retreated 4.8%. The small-cap Russell 2000 plunged 7.5%.
The 10-year Treasury yield rose 8 basis points to 3.24%. On Tuesday, the 10-year yield shot up to 3.48%, an 11-year high.
U.S. crude oil futures plunged more than 9% to $109.56 a barrel last week, snapping a seven-week losing streak. Gasoline futures also fell sharply. Natural gas prices tumbled.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dived just over 12% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) skidded 9.1%. The iShares Expanded Tech-Software Sector ETF (IGV) stumbled 5.1%. The VanEck Vectors Semiconductor ETF (SMH) lost 8.1%.
SPDR S&P Metals & Mining ETF (XME) sold off 10.4% last week. The Global X U.S. Infrastructure Development ETF (PAVE) faltered 8.6%. U.S. Global Jets ETF (JETS) descended 8.9%. SPDR S&P Homebuilders ETF (XHB) stepped down 11.4%. The Energy Select SPDR ETF (XLE) crashed 17.2% and the Financial Select SPDR ETF (XLF) gave up 4.8%. The Health Care Select Sector SPDR Fund (XLV) lost 4.5%, with Lilly and VRTX stock both holdings.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 3.3%, rebounding well off lows and still not undercutting its late May lows. ARK Genomics ETF (ARKG) dipped just under 1% after setting a fresh two-year low. Tesla remains a major holding across Ark Invest ETFs. Ark has a small position in BYD stock.
BYD stock rose 4% on Friday but fell 4.1% to 37.45 for the week, snapping a five-week winning streak. The stock has forged a handle on a weekly chart, giving it a 39.81 buy point. With such a deep base — 48% — the risks of a failed breakout are higher. A long handle, especially one that’s long enough to be its own tight base, would be constructive.
But with China EV stocks — and U.S.-listed Chinese stocks generally — rebounding, BYD stock may not stay in park for long. Nio (NIO), Xpeng (XPEV) and Li Auto (LI) have been running up, with Li Auto getting close to highs.
Li Auto will unveil its second hybrid SUV, the L9 on Tuesday.
Meanwhile, China’s Ministry of Industry and Information Technology is mulling a range of new policies to support EV manufacturing.
BYD’s in-house battery and chip operations, along with massive capital spending over the past 18 months, have fueled huge sales growth and let the company avoid supply-chain and China Covid lockdown woes. Its sales of EVs and plug-in hybrids will top Tesla’s EV-only sales in the second quarter, and is likely keep that lead going forward
Tesla stock, meanwhile tumbled 6.7% last week to 650.28, nearly undercutting its late May lows.
Two former Tesla employees fired this month sued the U.S. EV giant, saying they weren’t given 60-day notice under federal rules for mass layoffs. Tesla is cutting some staff after Musk reportedly said he wanted to cut 10% of jobs, later clarified as targeting non-production workers.
Enphase stock slumped 5.8% to 184.90 last week. Friday’s 8.9% gain pushed ENPH stock back above its 50-day and 200-day line. A breakout from a double-bottom base in early June quickly fizzled with the 193 buy point no longer valid. But a handle has now formed, with a 217.33 buy point just above the June 8 high. Keep in mind that Enphase stock has big daily moves. While solar stocks bucked the sell-off in oil and gas names on Friday, that may not last.
Still ENPH stock and SolarEdge Technologies (SEDG) were among the S&P 500’s top performers Friday. SEDG stock reclaimed its 50-day line, working on a cup-with-handle base.
Vertex stock rose 3.2% to 253.09 last week, nearly reclaiming its 50-day line with Friday’s 4.8% pop. A 276.10 cup-with-handle buy point is no longer valid, so the official entry is 292.85. But investors could use 279.23 as an early entry.
Eli Lilly Stock
Eli Lilly stock fell 2.15 to 390.90 last week, hitting resistance at the 50-day line on Friday. A strong move above the 50-day line might offer an early entry for LLY stock. A prior flat-base buy point of 314.10 is no longer value, but Lilly stock is in the process of forging another consolidation next to it.
SQM stock fell 6% last week to 90.29, but rose Friday after finding support at its 50-day line. The stock erased a 27% gain from a 90.97 buy point in the past few weeks. But a strong rebound from the 50-day line could offer an entry for SQM stock.
SQM and BYD stock are both key components in Global X Lithium & Battery Tech ETF (LIT), along with Tesla.
The severe market correction — a bear market for the S&P 500 and Nasdaq — continued to worsen last week.
Friday’s mixed action was hardly inspiring. Yes, the Nasdaq and S&P 500 rose Friday, so it’s technically day one of a stock market rally attempt for those two indexes. But they only trimmed steep weekly losses.
The S&P 500, Dow Jones and S&P 500 all hit their worst levels since late 2020.
Even if the market climbs and stages a follow-through day in the near future, there still would be many reasons to be skeptical, and few stocks to buy.
The oil and gas sector, the one enduring area of market strength, plunged this past week, with many big winners flashing sell signals. The sector may not be finished, but it was a character change, with the charts damaged.
While some stocks such as BYD and SQM are near buy points, and other names such as Vertex, Lilly or Enphase could be interesting with a few solid sessions, many potential leaders may take weeks of repair. And this is in a scenario where a new market rally takes a firm hold.
Right now, it’s far more likely that the stock market continues lower. An economy teetering toward a recession while the Federal Reserve is early in an aggressive tightening cycle is not a great environment for stocks.
The major indexes are all close to their pre-Covid peaks. That could offer a potential support level, but it doesn’t have to hold. The Russell 2000 is already undercutting that key level.
What To Do Now
Investors have no reason to be invested, with even energy stocks flashing sell signals. The only possible exception would be modest exposure in long-term winners.
Still, it’s important to stay engaged, watching the market action and preparing for the next uptrend.
It’s time to get your pencils, not your pens, for updating your watchlists. Look for stocks with strong relative strength, especially if they are holding key support levels. But a lot of stocks with strong RS lines will have ugly charts right now.
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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