Dow Jones futures as well as S&P 500 and Nasdaq will open on Sunday night. A government shutdown is almost certain to occur Sunday. On Friday, the House rejected Speaker Kevin McCarthy's stopgap budget bill. Tesla deliveries are also imminent.
The major stock indexes are on the move, having recovered from their midweek lows. The Dow Jones has seen a mediocre rebound. The retreat of Friday from intraday highs suggests that this rally may be a temporary one.
It is important to wait for a follow-through day before confirming the new upward trend. Investors should wait until then before adding to their exposure.
Analysts have been slashing their forecasts for the third quarter. Nio (NIO), Li Auto(LI) and XPeng(XPEV) are expected to report their September and third quarter sales on Sunday. EV giant BYDDF (BYDDF), is due to announce its figures before the opening of Monday.
Tesla briefly flirted on Friday with a bold entry, while XPeng may have given an early buy-signal. BYD still has work to do, while Li Auto stock and NIO need some time for repairs.
Tesla Stock is on the IBD 50.
Government Shutdown is Near
On Sunday, October 1, a shutdown of the federal government seems more likely. Both the GOP-led House of Representatives and Democrat led Senate disagree on spending bills. Their razor-thin majority in each chamber complicates efforts.
House rejected the short-term funding measure pushed by Kevin McCarthy on Friday. McCarthy's inability to pass a bill through the House, even though it would not have stood a chance in the Senate is ominous for a possible deal.
If there is no agreement, up to 3 million government employees will be without pay as of Sunday. The release of key economic data such as the September jobs report, due on Friday, would be delayed.
A short government shut down would have a minimal impact on the economy or markets, but one that is prolonged could have major implications.
Fears of a government shutdown were one major reason for the sharp decline in Friday's market gains.
Dow Jones Futures
Dow Jones futures will open at 6 pm ET on Sunday, along with S&P 500 and Nasdaq 100 futures. S&P 500 and Nasdaq futures will open at 6 p.m. ET on Sunday.
Keep in mind that overnight trading in Dow futures or elsewhere may not necessarily translate to actual trading during the next regular session of the stock market.
Stock Market Rally
The stock market started a rally midweek but has only seen modest gains since then.
The Dow Jones Industrial Average dropped 1.2% for the week. Last week, the S&P 500 index fell 0.4%. Nasdaq ended marginally higher. The Russell 2000 small-cap index rose 0.5%.
The S&P 500, Nasdaq and Dow Jones have been trying to rally for three days. However, they've not made any progress. The next day could be as early as Monday. However, these major indices are not far away from their recent lows.
The Dow Jones fell below its 200-day level on Tuesday. Friday's attempt to regain that level failed quickly. The Dow Jones didn't fall below Wednesday's lows, but it did end with its worst closing in almost four months. Technically, Dow is in day 2 of an attempt to rally.
The market has shown a decent breadth in recent days, but overall the trend has been anemic over the last few weeks.
The yield on the 10-year Treasury note rose 13 basis points, to 4.57%. Intraday on Thursday, the yield reached 4.69%, its highest level since October 2007. In the third quarter, the yield increased by 75 basis points.
Last week, U.S. crude futures increased 0.8% to $90.79 a barrel after briefly touching $95 a barrel. Crude oil surged by 28.5% in the first quarter.
The energy stocks began the week strong but lost much of their gains as crude prices rose. The market must cooperate for some tech, insurance, and building plays to be attractive.
At Friday's market highs, several stocks, including Tesla, flashed buy signs, but the majority of them sank along with it. Some stocks held up like Zscaler (ZS), and PDD Holdings(PDD).
Innovator IBD ETF (FFTY), which is a growth ETF, climbed by 1.45% in the past week. The iShares Expanded Tech Software Sector ETF (IGV), a growth ETF, gained 0.2%. VanEck Vectors Semiconductor ETF SMH jumped 2.1%.
ARK Innovation ETF ARKK (ARKK) grew 2.2% and ARK Genomics ETF ARKG (ARKG) slipped 0.2%. Tesla stock is No. Ark Invest ETFs hold a large amount of Tesla stock. Cathie Wood's Ark owns BYD as well.
Global Jets (JETS) fell 0.8%. SPDR S&P homebuilders ETF XHB grew by 0.5%. Energy Select SPDR (XLE) increased by 1.2%. The Industrial Select Sector SPDR Fund XLI fell by 0.4%. Financial Select SPDR ETF XLF declined by 1.5%.
The EV giant will report its third-quarter deliveries and production before the opening of Monday. Analysts are rushing in the last days to reduce their optimistic predictions. Tesla deliveries will likely fall from Q2’s record of 466,140. Tesla's temporary shutdowns, and general slowdown in production likely led to a sharp drop in production compared to Q2. This was partly due to the new Model 3 and the Cybertruck. However, it also appears that Tesla wanted to reduce its bloated inventories.
Tesla bulls have already started looking beyond Q3 deliveries. They are betting on a good Q4 and a possible Cybertruck launch.
Tesla's stock price rose by 2.2% last week to $250.22. The shares briefly broke through the 50-day line before reversing their gains on Friday. A move decisively above the 50 day line could be an opportunity to enter early. According to MarketSmith, TSLA has a buy-point of 278.98 cups with handles.
China EV Deliveries
Li Auto, Nio, and XPeng, the pioneers of electric vehicles (EV), will announce September and Q3 sales on Sunday.
Li Auto is expected to lead again, with a record-breaking month. However, there are rumors that the hybrid SUV manufacturer, Li Auto, has begun offering discounts and joining the price war for EVs.
XPeng has been riding the demand for the G6 Crossover, a Tesla Model Y competitor, as well the newly refreshed G9 SUV at a lower cost.
Nio will struggle to reach 20,000 units in September.
Li Auto's stock fell 9.2% to a three-month low last week on fears of discounting. Nio's stock rose 5.9% in a week, but it is still well below the key moving averages. XPEV surged by 11.7% to 18,36, retaking a 50-day line. It also crossed a downward trendline. Investors may want to wait for a more conservative entry point, like 19.96. The official purchase point is 23.62.
BYD is expected to report another record-breaking month on Monday, led by new models and exports. Over the last year, BYD's total vehicle sales have surpassed Tesla's. This includes plug-in hybrids. BYD is also closing the gap with Tesla on all-electric BEVs. It will likely be just a few points behind its U.S. competitor in Q3, but it could take the crown in Q4.
BYD's stock dropped 1.7%, to 30.89. It traded between the 50-day line and the 200-day line. The official buy-point is 36.27. However, it may be possible to enter the market earlier if a significant move is made above a declining 50-day.
What to Do Now
The Friday decline is a good example of why investors should not rush to buy stock at the first rise. There is a rally in the market, but it hasn't been able to prove that this is anything more than just a short bounce within a correction.
In the next few weeks, a follow-through day may still happen. This is especially true if a shutdown of the government is avoided or quickly ends. Investors should use this weekend to run screens and get your watchlists ready. Concentrate on stocks that have strong relative strength.
You'll be able to benefit from the market rally if it lasts for several weeks or even months. You'll be happy you're mostly on the sidelines if the market correction reaches new lows.
Even if you are not a frequent short seller, it is important to remain open-minded and look for potential shorting opportunities. This can help you maintain perspective as the leading stocks rise towards the 50-day level and other important levels.
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