Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally backed off key resistance on Monday as inflation and recession concerns coupled with renewed concerns about China headed towards key economic data.
The Nasdaq, which led the gains in the major indexes over the past week, suffered the biggest losses on Monday. Treasury yields remain inverted, a recession warning.
China’s stocks were big losers as Covid restrictions returned and regulators slapped fines on tech companies, including Alibaba (Baba).
BABA camp and Li car (LI), which started the week around buy points, retreated on Monday. In the meantime, AstraZeneca (AZN) and Hershey (HSY) performed well, reflecting the defensive bias.
Tesla (TSLA) and TWTR shares fell after Tesla CEO Elon Musk exited the $44 billion Twitter acquisition late Friday. Twitter (TWTR) has vowed to fight in court to complete the transaction.
Li Auto, Hershey and AZN shares are on the IBD 50. Hershey was the IBD stock of the day on Monday. The video embedded in the article highlighted market action and analyzed BABA, AstraZeneca and Hershey stocks.
Dow Jones futures today
Dow Jones futures lost 0.4% from fair value. S&P 500 futures fell 0.5% and Nasdaq 100 futures fell 0.6%.
Crude oil prices fell more than 1%.
The 10-year government bond yield fell 3 basis points to 2.96%.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
The stock market rally lost ground on Monday, with major indices closing near session lows.
The Dow Jones Industrial Average slipped 0.5% in trading on Monday. The S&P 500 index fell 1.15%. The Nasdaq Composite plunged 2.3%. Small-cap Russell 2000 fell 2%.
US crude prices fell 0.7% to $104.90 a barrel, well off the morning’s lows.
The 10-year government bond yield slipped 11 basis points to 2.99%. The two-year yield fell 5 basis points to 3.07%, which in turn was inverted along much of the yield curve. The 1-year Treasury yield rose 4 basis points to 2.99%, in line with the 10-year yield.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) lost 1.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.7%. The VanEck Vectors Semiconductor ETF (SMH) fell 2.4%.
The SPDR S&P Metals & Mining ETF (XME) was down 1.65% and the Global X US Infrastructure Development ETF (PAVE) was down 0.4%. The US Global Jets ETF (JETS) fell 2.3%. SPDR S&P Homebuilders ETF (XHB) is down 0.5%. Energy Select SPDR ETF (XLE) and Financial Select SPDR ETF (XLF) are down 0.8%. The Health Care Select Sector SPDR Fund (XLV) declined 0.25%.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) fell 6.9% and ARK Genomics ETF (ARKG) 5%. Tesla stock remains a top position among Ark Invest’s ETFs.
The five best Chinese stocks to watch right now
Over the weekend, regulators fined Alibaba Tencent (TCEHY) and several other technology companies for not disclosing some previous acquisitions. The 500,000 yuan in fines were relatively small but raised concerns that Beijing’s crackdown on tech giants is not over yet.
Macau has closed casinos and most businesses for a week, reviving fears over China Covid restrictions.
Alibaba shares plunged 9.4% to 109.57, closing below its 21-day moving average for the first time since late May. Last Thursday, BABA stock moved above its 200-day moving average and cleared some resistance above the 121 level, offering an aggressive entry. Stocks fell below these key levels on Friday.
While a strong move above last week’s highs might be feasible, BABA stock would ideally form a consolidation above its 200-day moving average
Li car stock
Li Auto shares fell 4% to 37.33. just below 37.55 buy point. The shares are still sharply extended from their 50-day moving average. It’s possible that LI stocks could form a flat base on the long, deep consolidation. The last few weeks could be seen as a grip on a base that stretches back to the end of 2020.
AstraZeneca stock fell 0.3% to 66.75 after flirting with a double bottom buy point at 67.50, according to MarketSmith analysis. The line of relative strength for AZN stock, the blue line in the provided charts, is just below a high.
HSY stock rose 0.4% to 220.65, just below a 222.75 Cup with Henkel buy point. While defense stocks are popular right now, that doesn’t mean they’re safe. Many food and beverage stocks, including Hershey stock, plummeted on May 18th. Since the end of June, however, shares have recovered.
Musk vs. Twitter saga
Faced with the buyer’s remorse, Musk said late Friday that he no longer wanted to buy Twitter, something he’d been signaling heavily for the past several months. Twitter said a deal is a deal to force Musk to go ahead with the $44 billion, $54 per share acquisition. Twitter has hired a merger law heavyweight to represent it. Legal experts say Musk has a weak case.
Twitter shares plunged 11.3% to 32.65 on Monday, its lowest level since mid-March. TWTR stock hit a two-year low of 31.30 on Feb. 24.
After the deal, Twitter, through his attorneys, said Musk’s offer to end the acquisition was “invalid and unlawful.”
Tesla shares, which rose slightly near the open, fell 6.55% to 701.99. It’s likely that some or even most of Monday’s losses reflected growth-related market weakness and China concerns. TSLA shares fell back below the 50-day moving average after closing above that level for the first time in two months on Friday. Shares also fell slightly below their 21-day moving average.
Tesla’s arch-rival goes into production Overdrive
Analysis of the market rally
Given last week’s market gains at key levels, Monday’s decline came as no surprise, especially given the negative China news and so much key data.
The Nasdaq retreated from the 50-day and 10-week moving averages. which served as the main resistance in 2022. This does not mean that this test has already failed. The index could stagnate around these levels for several days or weeks before breaking through.
The Nasdaq closed just below its 21-day moving average. The S&P 500, Dow Jones and Russell 2000 also undercut these short-term levels.
China news aside, it’s difficult to be bold at current levels when major news is on demand.
Wednesday’s consumer price index is likely to show a slight rise in inflation from a 40-year high of 8.6% in May. Core inflation should cool off slightly. With gasoline prices falling significantly since the June 14 peak and commodity prices falling sharply in recent weeks, headline inflation should ease. So it’s unclear how markets will react to the June inflation data.
A 75 basis point rate hike by the Fed in late July looks set, with a tiny chance of a full percentage point. The real impact will be the impact of future Fed rate hikes. But policymakers will get two more CPI and employment reports ahead of the September meeting, with a host of other data leading up to the November Fed meeting.
In the meantime, JPMorgan Chase (JPM), MorganStanley (MS) and Delta Airlines (DAL) reported early Wednesday with several other banks and UnitedHealth (UNH) on tap later in the week.
Amid the rapid changes in the economy, guidance will be crucial.
Time the market with IBD’s ETF market strategy
As the market faces resistance ahead of major economic and corporate news, investors may not want to gain modest exposure in the very short term. Certain sectors are working, particularly defensive or defensive growth stocks like HSY Stock and AbbVie. However, when the market rebounds strongly, defensive names can sell off or lag. So don’t focus too much on a specific sector or topic.
Investors may want to take partial profits on recent winners.
Read The Big Picture every day to keep up to date with 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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