Dow Jones Futures: Market Rally Hits Key Test; Here’s what to do now

Dow Jones futures will open Sunday evening, along with S&P 500 and Nasdaq futures. The stock market rally had another strong week, moving into an important test.

A market break would not be a surprise, and could be healthy, after strong price gains on generally light volume in recent weeks. Investors should be cautious about adding more exposure.

Diversified oil giant Exxon Mobil ( XOM ) is setting up near potential entries as energy stocks lead again. Costco Wholesale ( COST ) has a cup base with a handle, even as several key rivals report this coming week. UnitedHealth ( UNH ) has traded strongly inside a buy zone, creating another entry. Apple ( AAPL ) is nearing a breakout as AAPL stock outperforms other megacaps. Microsoft (MSFT) is closing in on its 200-day line, which could provide an opportunity to start a position.

China’s electric vehicle startup Li Auto ( LI ) reports earnings before the open on Monday. LI stock has been among the best electric vehicle stocks, outperforming giants BYD ( BYDDF ) and Tesla ( TSLA ), but it needs to break above its 50-day line. BYD shares are below their 50-day line, while Tesla is below its 200-day.

UNH stock is on the IBD Leaderboard and was the IBD Stock of the Day on Friday. MSFT shares are long-term IBD leaders.

The video embedded in this article discussed the weekly market action in depth, while looking at shares of Exxon Mobil, UnitedHealth and Apple.

Dow Jones futures today

Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.

Join IBD’s experts as they analyze actionable stocks in the stock market’s recovery on IBD Live

Stock Exchange meeting

The stock market rally closed at weekly highs despite some reversals during the week.

The Dow Jones Industrial Average rose 2.9% in the stock market last week. The S&P 500 rose 3.25%. The Nasdaq composite rose 3.1%. The small-cap Russell 2000 jumped 5%.

The 10-year Treasury yield edged up 1 basis point to 2.85%, but with some big moves on the week.

US crude futures rose 3.5% to $92.09 a barrel last week, despite Friday’s pullback. Gasoline futures jumped 6.7%. Natural gas prices rose 8.7% during the week.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) gained 2.3% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 3.1%. The iShares Extended Technology Software Sector ETF ( IGV ) advanced 3%, with MSFT as IGV’s top holder. The VanEck Vectors Semiconductor ETF ( SMH ) rose 0.7%, recovering from sharp losses after warnings from Nvidia ( NVDA ) and Micron ( MU ).

The SPDR S&P Metals & Mining ETF ( XME ) rose 8.3% last week. The Global X US Infrastructure Development ETF (PAVE) rose 4.6%. US Global Jets ETF (JETS) rose 3.5%. SPDR S&P Homebuilders ETF (XHB) rose 4%, its eighth straight weekly gain. The Energy Select SPDR ETF (XLE) rose 7.4%, and XOM shares are heavily weighted in XLE. The Financial Select SPDR ETF (XLF) rallied 5.4%. The Select Health Care Sector SPDR Fund ( XLV ) rose 1.65%, with UNH shares a big contributor.

Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) rose 3.25% last week and the ARK Genomics ETF (ARKG) rose 3.8%. Tesla stock is a major holding in Ark Invest’s ETFs. Cathie Wood’s Ark also has some shares of BYD.

Top Five Chinese Stocks to Watch Now

Actions near the points of purchase

Shares of XOM rallied 6.3% to 93.99 last week, pulling back above the 50-day line. Shares of the energy giant are closing in a trend line since the peak in early June. The official buy point is 105.67, but it would be significantly above the 50-day line. Volume was light last week and hasn’t been heavy over the past month as Exxon shares rallied. Profit growth continues to boom.

Shares of COST were down 0.6% last week to 537.21. According to MarketSmith analysis, shares are down on a handle with a buy point of 552.81.

Note that smaller rival BJ’s Wholesale ( BJ ) reports this coming Thursday. Walmart ( WMT ) , owner of the Sam’s Club department store chain, will report Tuesday morning, and Target ( TGT ) will report Wednesday.

UNH shares rose 1.6% to 543.70. The health insurer giant is still in the range of a 518.80 cup-with-handle buy point, although it is still below the April 14 high. UnitedHealth shares haven’t finished forging a tight three-week pattern, just breaking above the weekly move limit. But investors could still use 545.84 as an alternative buy point.

Apple shares advanced 4.1% to 172.12 last week. It was the sixth consecutive weekly gain, but all have come on light volume. On the upside, the relative strength line has made several new highs, reflecting the outperformance of AAPL stock relative to the S&P 500. Apple stock is moving toward a double-bottom buy point of 179.71. Technically, the stock is only reaching a trendline. Ideally, AAPL stock will forge a handle.

MSFT shares rose 3.2% to 291.91 but, unlike Apple, are still below their 200-day moving average. A big move above the 200-day line could provide an opportunity to enter MSFT shares as a long-term leader. The RS line is not far from the 2022 high, even with MSFT shares significantly below their late November record high of 349.67.

Li Auto earnings

Wall Street expects a net loss of 2 cents per share on sales of $1.4 billion in the second quarter, according to FactSet. That’s compared to a loss of 1 cent a year earlier on $780.4 million.

Li Auto has been profitable for the past three quarters, but the Covid shutdowns took a toll on production and deliveries in the second quarter. Li Auto currently has only one model, the Li One hybrid SUV.

But it has started sales of the L9 premium hybrid SUV, with deliveries starting later this month. Pre-orders have been strong, with Li Auto forecasting L9 deliveries of 10,000 or more in September.

LI shares fell 3.4% to 32.49 last week, creating more space compared to its 50-day line and extending a downtrend that began in late June, which followed a great run since the beginning of May. The stock closed in the upper half of its weekly range. Li Auto shares would make a new base with a buy point of 41.59, if it starts building the right side. A strong move above the rising 50-day could offer an early entry.

Tesla vs. BYD: The EV giants are now friends

Shares of Tesla and BYD

Tesla shares rallied 4.1% to 900.09 last week. This returns above its 200-day moving average, retracing its 40-week line on Friday. A break above its 200-day line and the August 4 high of 940.82 would provide an aggressive entry for TSLA stock. The official buy point is 1,208.10.

BYD shares fell 0.2% last week to 36.69, trading strongly but below the 50-day line. China’s battery and electric vehicle giant has a base with a buy point of 43.71. A decisive move above the 50-day would offer an early entry.

BYD is supplying Blade batteries to Tesla Berlin, according to some reports. The blade-powered Y models should start rolling off the production line in a few weeks. Meanwhile, BYD will begin deliveries of the Seal sedan, a much cheaper rival to the Model 3, in the coming weeks. BYD will also begin deliveries of the Atto 3 in Australia in a few days, entering a new market as part of a major international expansion.

Analysis of market concentration

The stock market’s rally had a couple of unsightly intraday reversals on Monday and Thursday, but ultimately saw solid gains in the major indexes.

The Dow Jones, S&P 500 and Russell 2000 have decisively surpassed their early June highs, joining the Nasdaq. The Russell 2000 is just above its 200-day line, with the S&P 500 and Dow Jones close behind. The Nasdaq has a little more work to do to reach this long-term level as it reaches the 13,000 level.

A break above the 200-day line would be evidence that the current uptrend is more than a substantial bear market rally. A pause or pullback would not be a surprise after a strong advance by the major indexes, largely on lackluster volume. Friday’s bounce, an inside day for the S&P 500 and Nasdaq, had very light volume.

A modest pause or pullback for a few days or weeks could be constructive, but the market will do what it will do.

Energy stocks continue to look strong, but will move up or down with underlying oil and natural gas prices.

A wide range of doctors are doing well. Makers of chips, lithium plays, some steel plays, transports and more are showing positive action.

Time the Market with IBD’s ETF Market Strategy

what to do now

As Scott Bennett of Invest with Rules said on IBD Live on Friday, investors don’t need to slow down, but they may want to ease off the gas.

Be careful about adding very short-term exposure, with the market rally perhaps stretched and facing another key resistance area. Taking partial profits is still a solid strategy and a way to avoid increasing exposure from new purchases.

Still, some quality stocks continue to show buy signals or settle. Investors should participate in this market and look for new opportunities. So keep building those watchlists.

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