Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
The stock market suffered another heavy loss last week as a tightening Federal Reserve pushed government bond yields higher again. The Dow Jones broke June lows on Friday while other major indices were close. The last growth leaders began to collapse.
As the market correction intensifies, it’s time for investors to stand aside but be on the lookout for potential leaders. A few medical stocks are showing relative strength, including Eli Lilli (LLY). Chinese e-commerce giant Pinduo (PDD) withdraws somewhat calmly. Apple (AAPL), Tesla (TSLA), Enphase Energy (ENPH) and Albemarle (ALB) are coming under increasing pressure, but are still worth watching for the future.
Tesla stock, Enphase Energy and Albemarle are on the IBD 50. Enphase and ALB stock are on the IBD Big Cap 20. Eli Lilly was the IBD stock of the day on Friday.
Dow Jones futures today
Dow Jones futures open at 6:00 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
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 action
The stock market took another sharp hit last week, ending near weekly lows despite a small rebound near Friday’s close.
The Dow Jones Industrial Average fell 4% in trading last week. The S&P 500 index fell 4.6%. The Nasdaq Composite fell 5.1%. Small-cap Russell 2000 plunged 6.6%.
The 10-year Treasury yield rose 25 basis points to 3.7%, marking its eighth consecutive weekly gain.
US crude futures fell 7.1% last week to $78.74 a barrel, the lowest since January.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged 10.8% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 6.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 5.4%. The VanEck Vectors Semiconductor ETF (SMH) lost 5.7%.
The SPDR S&P Metals & Mining ETF (XME) fell 8.3% last week. The Global X US Infrastructure Development ETF (PAVE) lost 5.3%. The US Global Jets ETF (JETS) fell 9.1%. The SPDR S&P Homebuilders ETF (XHB) fell 4.2%. The Energy Select SPDR ETF (XLE) is down 10.15% and the Financial Select SPDR ETF (XLF) is down 6.1%. The Health Care Select Sector SPDR Fund (XLV) fell 3.6%
Mirroring a more speculative story stock, ARK Innovation ETF (ARKK) lost 11.2% and ARK Genomics ETF (ARKG) 10.1% last week. TSLA stock remains among the top holdings of any Ark Invest ETF.
The five best Chinese stocks to watch right now
Apple shares closed near weekly lows but fell just 0.1% to 150.54. On Wednesday, AAPL stock met resistance near its 10-week and 40-week moving averages and is back near the recent lows. But the relative strength line made a new high on Friday. Apple stock still has a handle buy point of 176.25 but the first test will be the reclaim of its 50-day and 200-day moving averages.
Eli Lilly’s stock even rose 0.9% over the past week to 311.60. Shares rose nearly 5% on Thursday following positive drug news and an analyst upgrade. LLY stock is on the wrong side of its 50-day moving average and is facing resistance there on Friday. But the RS line is racing higher. The pharma giant has a flat buy point of 335.43, according to MarketSmith analysis. There is a potential trendline entry just above the 50-day moving average, but it’s not a good time to make any purchases.
Enphase stock fell 12.1% last week to 279.49, slightly undercutting its 50-day moving average and just undercuting recent lows. Ideally, ENPH stock would consolidate for a while, maybe create a new base.
Pinduoduo shares are down 8.5% to 60.08, breaking below its 21-day moving average and nearing its 50-day moving average. PDD stock has given up almost all of its gains since the Chinese e-commerce giant reported overdue results and briefly broke in late August.
But the RS line is still close to the 52-week high. A pullback to the 50-day moving average could be bullish with the possibility of a new base forming.
Of course, China risks are always high, while PDD stock is an outlier among e-commerce names or Chinese stocks in general.
Albemarle shares tumbled 6.1% to 269.69 last week but found support at its 50-day moving average on Friday. ALB stock is still above a 250.25 buy point from a tiny handle in early August while round trip gains look for an alternative entry of 273.78 from a massive cup and handle base. There is currently no clear entry for ALB stock.
Lithium prices are hot and likely to remain so indefinitely as demand for electric vehicles increases and lithium production is constrained. But there’s no question that ALB stock and other lithium stocks can be highly volatile and subject to large sell-offs.
Tesla shares plunged 9.2% to 275.36 with even bigger losses from Wednesday’s peak. TSLA stock broke below its 200-day and 50-day moving averages but held above the recent lows. The EV giant now has legitimate consolidation with a buy point of 316.74 within a much deeper consolidation. On a weekly chart, Tesla stock has a handle entry of 313.90.
The RS line was trending up until the end of last week.
Weekly sales data from China, likely to be released by Tuesday, could ease or add to Tesla’s demand fears there. Global production and delivery data for the third quarter will follow in early October.
Stock market analysis
The stock market endured another week of huge losses. The Dow Jones, along with the NYSE Composite, undercut its June lows on Friday. The Nasdaq, S&P 500 and Russell 2000 haven’t, but they just need another bad day to break out to the downside.
Could we get a bounce? Sure, the market appears to be oversold by various measures while the June lows are a logical place to attempt a rebound. The CBOE volatility index rose to a three-month high on Friday, although the market fear indicator is not at extreme levels.
Of course, a jump does not have to come immediately. And a good day or two won’t mean much if indices sell off quickly.
Any recovery in the stock market would likely require a pause or pullback in Treasury yields and the US dollar.
In recent weeks, market rallies, including intraday, have been lackluster, low-volume affairs followed by heavy selling.
There is a strong chance that the bear market will initiate another significant slide. Even if the market finally bottoms out, it could take a long time to bounce back higher.
What could change the dynamic? On September 30th, the Federal Reserve will get the PCE index for August, its preferred indicator of inflation. The job market report for September follows a week later. Positive readings would be a relief, but the Fed wants to see a continued decline in core inflation and labour-market weakness.
Expect big warnings over the next few weeks. High labor costs, supply chain problems, rising interest rates, a soaring dollar and a faltering economy are a recipe for earnings disappointment.
Some sectors are doing relatively well, but the emphasis is relative.
This includes drug giants like LLY stock, as well as other medical products, including certain biotechs and medical names. Environmental protection still looks okay. But even many stocks with RS lines rising or making new highs are faltering and are on the wrong side of the 50-day and 200-day moving averages.
Just because a stock has held up doesn’t mean it will in a market correction. A large number of resilient stocks have suddenly sold off sharply over the past week. These include growth holdouts that are starting to sell off heavily, like Enphase and TSLA stocks.
If these assets suffer significant further damage, it could mean, at best, an extended repair time. Again, the same could be said about the overall market.
Time the market with IBD’s ETF market strategy
Investors should stay on the sidelines. There are very few stocks that will hold up, and even relative winners have been affected by the market correction.
Keep building your watch lists with an emphasis on relative strength. Almost all charts, with a few exceptions like LLY stock, will look awful, but that’s okay for now.
If you’re looking for shorts, it’s probably best to wait for a rebound when stocks or the major indices bounce back to key levels and face resistance. But work on those potential lists as well.
Remember that it is very difficult to make money in a bear market. The time for big gains will follow in the next strong market rally. Staying engaged and preparing for this uptrend is crucial.
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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