Dow Jones futures fell modestly Monday night, along with S&P 500 futures and Nasdaq futures. A possible lithium deal and other Tesla news is in focus along with upcoming Nvidia earnings.
XThe major indexes last week slashed solid midweek gains, finishing mixed as inflation and Fed concerns weighed on stocks. The Nasdaq held key support, while the S&P 500 just undercut some levels.
After a strong start to the week, several leading stocks suffered violent sell-offs but then came back. Among them were Albemarle (ALB), Etsy (ETSY) and Shopify (SHOP).
The stock market rally still appears to be in the midst of a normal pullback. But investors should be less aggressive in the short run, perhaps slightly trimming exposure by cutting losers and taking some partial profits.
Home Depot (HD) and Walmart (WMT) will report early Tuesday, with the big-box retail giants not far from buy points.
Auto salvage auction site Copart (CPRT) topped fiscal second-quarter views Monday night. CPRT stock is near a cup-with-handle buy point.
Nvidia (NVDA), luxury homebuilder Toll Brothers (TOL) and Latin American e-commerce giant MercadoLibre (MELI) are among the many notable earnings reports in a holiday-shortened week. All three are near potential buy points. Nvidia earnings will be important for Advanced Micro Devices (AMD) and the chip sector generally. Toll Bros. earnings will be key for other homebuilders.
Tesla (TSLA) is mulling a bid for Sigma Lithium (SGML), Bloomberg reported late Friday. Sigma has not generated any revenue, but is poised to start commercial production. SGML stock soared Friday night, with ALB stock and other lithium plays also rising after hours.
Meanwhile, weekly China EV registrations will be out early Tuesday. That'll offer some clues about Tesla demand, as well as whether rivals such as BYD (BYDDF) are ramping up deliveries.
TSLA stock continued its huge run last week.
Dow Jones Futures Today
Dow Jones futures fell 0.4% vs. fair value. S&P 500 futures lost 0.4% and Nasdaq 100 futures retreated 0.4%.
Crude oil futures edged higher.
The 10-year Treasury yield climbed 3 basis points to 3.86%.
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
The stock market rally started the past week strong but fell back late in the week, though the leaders came off Friday's intraday lows.
The Dow Jones Industrial Average fell 0.1% in last week's stock market trading. The S&P 500 index was down 0.3%. The Nasdaq composite rose 0.6%. The small-cap Russell 2000 advanced 1.4%.
The 10-year Treasury yield rose 8 basis points to 3.83%. The 10-year yield reversed slightly lower Friday after testing the late December peaks, but is still up 50 basis points from the Feb. 2 intraday low.
U.S. crude oil futures tumbled 4.2% to $76.34 a barrel last week. Copper prices fell 2.15%. Demand fears and a rebounding dollar are hitting energy and industrial commodities.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) was essentially flat. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.5%. Nvidia stock is a big SMH holding.
SPDR S&P Metals & Mining ETF (XME) rose 1.7% last week, with steel and coal names leading the way. The Global X U.S. Infrastructure Development ETF (PAVE) climbed 1.9%. U.S. Global Jets ETF (JETS) ascended 1.3%. SPDR S&P Homebuilders ETF (XHB) edged up 0.4%. The Energy Select SPDR ETF (XLE) tumbled 6.3% and the Financial Select SPDR ETF (XLF) dipped 0.3%. The Health Care Select Sector SPDR Fund (XLV) slipped 0.4%, the eighth straight weekly decline.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rebounded 6.85% last week and ARK Genomics ETF (ARKG) edged up 0.9%. Tesla stock remains a core holding across Ark Invest's ETFs, especially ARKK. Roku (ROKU) was a big ARKK winner.
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Nvidia Earnings
Nvidia earnings are due Wednesday night for the January-ending fourth quarter. Analysts expect a 39% EPS decline vs. a year earlier, slightly better than the 51% and 50% drops in fiscal Q2 and Q3, respectively.
Analysts are expecting Nvidia earnings to rebound in the new fiscal year. Investors will be looking for comments about artificial intelligence demand.
NVDA stock has soared since the Jan. 6 follow-through day, blasting past a 188 cup-base buy point back on Jan. 24. Shares fell Wednesday-Friday and could have a handle on a consolidation going back to March 2022, just in time for Q4 results. But it wouldn't be much of a shakeout, with Nvidia stock edging higher for a seventh straight week. Shares are also well above moving averages.
Nvidia and Tesla stock are probably the best-performing megacaps, so Nvidia's earnings and stock analysts' reaction will be important for the market rally. It may also be a catalyst for the overall chip sector, especially rival AMD stock.
Toll Brothers Earnings
The luxury builder reports Tuesday night. Analysts see Q1 earnings per share rising 14% vs. a year earlier, but then falling for the full year. A big fall in Treasury yields and mortgage rates from late October to early February sent TOL stock and rivals soaring, but they are coming under pressure again.
TOL stock fell 2.65% last week to 57.20, falling below its 21-day line Friday. But shares are working on a 62.71 cup-with-handle buy point.
MercadoLibre Earnings
MercadoLibre earnings are due Thursday night, with a big profit seen vs. a year earlier loss. Solid growth is expected for 2023 as well.
MELI stock fell just 0.4% last week to 1,100.87, but near weekly lows. Shares are slightly below the 21-day but just holding a 1,095.44 buy point. The e-commerce and payments giant raced up a consolidation in early January, blowing past the buy point to hit 1,250.48 on Feb. 2. Technically, MercadoLibre stock is actionable now, but investors should probably wait until after earnings and see if shares can clear last week's high. That would also mean MELI stock retakes the 21-day line and breaks a short downtrend. Investors also could view the recent pause as a handle to a larger consolidation going back to early April.
Tesla China EV Demand
Tesla China demand remains a big question mark. On Tuesday, weekly China EV registrations will offer a little more clarity. Tesla's EV registrations fell last week while rivals such as BYD began to recover from the long China New Year holidays. Tesla exports may be limiting vehicles for local delivery.
Shanghai production reportedly was set to slow again on Feb. 19, to help prep for a possible Model 3 upgrade.
Tesla stock remains hot, rising 5.8% to 203.35 last week. That's despite a Thursday retreat as NHTSA announced a Tesla recall of more than 362,000 vehicles for FSD safety flaws. TSLA stock has more than doubled from the bear-market low of 101.81. Ideally, shares would pause for a time, then retake a falling 200-day line.
China state media over the weekend noted renewed Tesla safety concerns — and reports of reduced Tesla orders — after a seemingly out-of-control Model 3 crashed in Wenzhou on Friday, killing a passenger.
On Saturday, a Tesla driver died in California as the vehicle slammed into a stationary fire truck in California. The NHTSA asked the EV giant for information. It's been probing Tesla Autopilot crashes into stationary emergency vehicles since late 2021.
Tesla Eyes Sigma Lithium?
Meanwhile, Tesla may be looking to secure more battery metal supplies, reportedly eyeing Sigma Lithium. Talks are in early stages, Bloomberg reported. Sigma Lithium, set to begin commercial production at its Brazilian site in April, has reportedly reached out to various automakers and miners. SGML stock closed with a market cap just above $3 billion, but soared 26% late Friday. TSLA stock rose a fraction.
ALB stock and SQM rebounded modestly Friday night, after plunging Friday.
A Tesla-Sigma deal would follow a big General Motors stake in Lithium Americas (LAC), with the aim of developing the Thacker Mine in Nevada. Piedmont Lithium (PLL), yet another zero-revenue play, just got an equity investment from battery maker LG Chem.
EV and battery giant BYD has a variety of lithium investments.
Tesla Vs. BYD: EV Giants Vie For Crown, But Which Is The Better Buy?
Market Rally Analysis
The stock market rally didn't show much change from Friday to Friday. But the major indexes closed near their weekly lows for a second straight week.
The S&P 500 undercut its 21-day line intraday Friday, but closed just above it. The benchmark index is slightly below its December peaks. But it's also not far from blasting out to multimonth highs.
The Dow Jones fell intraday Friday below its 50-day line to the lowest point since Jan. 25, though blue chips did reverse higher for the day. The Dow is trading very tightly in recent weeks.
The Nasdaq composite found support at its 21-day moving average on Friday, holding above its Feb. 10 low.
The Russell 2000 successfully held its 21-day line all week. The small-cap index stood out vs the big-cap averages, closing in the upper half of its weekly range.
Leading stocks started running past new buy points early in the week, as the Nasdaq looked poised to end its recent pullback. And some did well for the week, including Nvidia and Tesla stock. There were some strong moves on earnings, such Iridium Communications (IRDM).
But a number of leaders sold off hard. Some of that reflected weak earnings or outlooks, such as SHOP stock tumbling on guidance. Earnings sell-offs are always a risk. But there were also big sell-offs after positive results, with ALB stock plunging 9.7% Friday after flashing buy signals Thursday following earnings. SolarEdge Technologies (SEDG) is another example. These violent sell-offs are at least a little yellow flag.
Still, most leaders didn't suffer major damage. Even more top names are building out handles or retreating to their 50-day lines.
The question is what the overall market rally does. From a technical perspective, the pullback still looks healthy, especially looking at weekly charts. Friday's bounce off lows was encouraging. But the current pause could last for an extended period, or could turn into a more-damaging retreat.
The macroeconomic outlook in many ways has improved. Global recession risks have faded, while U.S. wage growth has cooled despite tight labor markets. But a "no landing" scenario also means inflation may be stickier, giving Fed officials the means and motive to raise rates for longer. Stocks had rallied to start the year in large part on hopes for a global recovery, but are now coming to terms with some of the negative implications of that scenario.
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What To Do Now
With the stock market rally continuing to move sideways, investors should be cautious about new buys. Sideways market action, though it can be positive ultimately, lures investors in with temporary strength, then chops them up.
It's a good time to review your portfolio. Depending on your situation, you might want to trim exposure slightly, by taking some profits and cutting laggards.
This is a time to be patient and preparing. A lot of stocks are setting up. So take advantage of the three-day holiday weekend to run your screens and get your watchlists up to date.
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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