Dow Jones futures were little changed overnight, as were S&P 500 and Nasdaq futures. The stock market rally fell back from key resistance on Monday amid inflation and recession worries heading into key economic data, as well as renewed worries about China.
The Nasdaq, which led last week’s gains on major indexes, suffered the biggest losses on Monday. Treasury yields remain inverted, a recession warning.
Chinese stocks were big losers as Covid restrictions returned and regulators imposed fines on tech companies, including Ali Baba (BABA).
BABA shares and Li-Auto (LI), which entered the week around the buy points, retreated on Monday. Meanwhile, Astra Zeneca (AZN) and Hershey (HSY) performed well, reflecting the defensive bias.
You’re here (TSLA) and TWTR shares fell after Tesla CEO Elon Musk decided Friday night to end the $44 billion Twitter takeover. Twitter (TWTR) has agreed to fight in court to complete the transaction.
Li Auto, Hershey and AZN stocks 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 were at par with fair value. S&P 500 and Nasdaq 100 futures were little changed.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD 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 indexes closing near session lows.
The Dow Jones Industrial Average slid 0.5% in Monday’s stock trading. The S&P 500 index fell 1.15%. The Nasdaq composite fell 2.3%. The small-cap Russell 2000 fell 2%.
US crude oil prices fell 0.7% to $104.90 a barrel, a far cry from morning lows.
The 10-year Treasury yield slipped 11 basis points to 2.99%. The two-year yield fell 5 basis points to 3.07%, once again inverted across much of the yield curve. The one-year Treasury yield rose 4 basis points to 2.99%, matching the 10-year rate.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) lost 1.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.7%. ETF VanEck Vectors Semiconductor (SMH) lost 2.4%.
The SPDR S&P Metals & Mining ETF (XME) fell 1.65% and the Global X US Infrastructure Development ETF (PAVE) edged down 0.4%. The US Global Jets ETF (JETS) fell 2.3%. The SPDR S&P Homebuilders ETF (XHB) fell 0.5%. ETF Energy Select SPDR (XLE) and ETF Financial Select SPDR (XLF) lost 0.8%. The SPDR healthcare sector fund (XLV) fell 0.25%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) sold 6.9% and ARK Genomics ETF (ARKG) 5%. Tesla stock remains one of Ark Invest’s top ETF stocks.
Five best Chinese stocks to watch now
Over the weekend, regulators fined Alibaba, Tencent (TCEHY) and several other technology companies for failing to disclose certain past takeovers. The 500,000 yuan fines were relatively small, but raised fears that Beijing’s crackdown on tech giants is not over.
Macau closed casinos and most businesses for a week, reigniting fears over China Covid restrictions.
Alibaba stock plunged 9.4% to 109.57, closing below its 21-day moving average for the first time since late May. Last Thursday, BABA stock broke above its 200-day line and broke through some resistance above the 121 level, offering an aggressive entry. Shares fell below those key levels on Friday.
While a strong move above last week’s highs could be exploitable, ideally BABA stock would form a consolidation above its 200-day line.
Automatic Li Stock
Li Auto shares fell 4% to 37.33. just below the buy point of 37.55. Stocks are still wide extended from their 50-day line. It is possible that the LI action could form a shallow base above the long and deep consolidation. The last few weeks could be seen as a handful towards a base going back to the end of 2020.
AstraZeneca shares fell 0.3% to 66.75 after flirting with a buy point at 67.50 double bottom, according to MarketSmith analysis. The relative strength line for AZN stocks, the blue line in the charts provided, is just below a high.
HSY stock edged up 0.4% to 220.65, just below a buy point of 222.75 cup with handle. While defensive stocks are in favor right now, that doesn’t mean they’re safe. Many food and drink plays, including Hershey stocks, plunged on May 18. However, stocks have rebounded since late June.
Musk vs. The Twitter Saga
Faced with buyer’s remorse, Musk said Friday night that he no longer wanted to buy Twitter, something he had been strongly signaling in recent months. Twitter said a deal is a deal, obliging Musk to move forward with the $44 billion, $54 per share takeover. Twitter has hired a merger law heavyweight to represent it. Legal experts say Musk has a weak case.
Twitter stock plunged 11.3% in Monday’s regular session to 32.65, the lowest since mid-March. TWTR stock hit a two-year low at 31.30 on February 24.
After the close, Twitter rose slightly. The company, through its attorneys, said Musk’s offer to end the takeover was “invalid and unlawful.”
Tesla stock, which rose slightly near the open, fell 6.55% to 701.99. It is likely that some or even most of Monday’s losses reflected growth-induced market weakness and concerns about China. TSLA stock fell back below the 50-day line after closing above that level on Friday for the first time in two months. Shares also fell slightly below their 21-day line.
Tesla Archrival enters production overdrive
Market rally analysis
Given last week’s market gains at key levels, Monday’s retreat was unsurprising, especially with negative news from China and so much key data at hand.
The Nasdaq retreated from the 50-day and 10-week moving averages. which served as a major 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 slightly below its 21-day moving average. The S&P 500, Dow Jones and Russell 2000 also broke above this level in the short term.
Beyond the news from China, it’s hard to be brave at current levels with key news at hand.
Wednesday’s consumer price index is expected to show inflation rising slightly from May’s 40-year high of 8.6%. Core inflation should cool slightly. With gasoline prices falling significantly from the June 14 peak and commodity prices falling sharply in recent weeks, headline inflation is expected to ease . It is therefore unclear how the markets will react to the June inflation data.
A Fed rate hike of 75 basis points in late July appears locked in, with a slim chance of a full percentage point. The real impact will be on the impact of future Fed rate hikes. But policymakers will receive two more CPI and jobs reports ahead of the September meeting, with a slew of other data by the Fed’s November meeting.
Meanwhile, JPMorgan Chase (JMP), Morgan Stanley (MS) and Delta Airlines (DAL) report early Wednesday, along with several other banks and UnitedHealth (UNH) on tap later in the week.
Guidance will be essential amid rapid changes in the economy.
Time the Market with IBD’s ETF Market Strategy
What to do now
As the market encounters resistance ahead of major economic and corporate news, investors may not want to add to modest exposure in the very short term. Some sectors are working, including defensive or growth defensive stocks like HSY stock and AbbVie. But if the market rebounds strongly, defensive names could sell off or lag behind. So don’t focus too much on one particular industry or theme.
Investors may want to take partial profits on recent winners.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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