Dow Jones futures will open Sunday evening, along with S&P 500 and Nasdaq futures.
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The stock market suffered sharp losses again last week as a Federal Reserve sent Treasury yields soaring again. The Dow Jones edged off June lows on Friday and the other major indexes were closing in. The final growth leaders began to break.
With the market correction intensifying, it’s a time for investors to stay on the sidelines, but look for potential leaders. Some medical stocks show relative strength, including Eli Lilly (LLY). Chinese e-commerce giant Pinduoduo (PDD) retires with some ease. apple (AAPL), Tesla (TSLA), Enphase Energy (ENPH) and Albemarle (ALB) are under increasing pressure, but still worth watching for the future.
Shares of Tesla, Enphase Energy and Albemarle are in the IBD 50. Shares of Enphase and ALB are in the IBD Big Cap 20. Eli Lilly was the IBD Stock of the Day on Friday.
The video embedded in the article talked about the strong market sell-off and was also analyzed Neurocrine Biosciences (NBIX), Albemarle shares and PDD.
Dow Jones futures today
Dow Jones futures open at 6pm 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 Action
The stock market suffered heavy losses again last week, closing near weekly lows despite a mini-bounce near Friday’s close.
The Dow Jones Industrial Average fell 4% in the stock market last week. The S&P 500 index fell 4.6%. The Nasdaq composite fell 5.1%. The small-cap Russell 2000 fell 6.6%.
The 10-year Treasury yield rose 25 basis points to 3.7%, capping an eighth straight weekly gain.
US crude futures fell 7.1% to $78.74 a barrel last week, hitting their lowest levels since January.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 10.8% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) suffered 6.5%. The iShares Extended Technology 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) was down 5.3%. US Global Jets ETF (JETS) fell 9.1%. SPDR S&P Homebuilders ETF (XHB) retreated 4.2%. The Energy Select SPDR ETF (XLE) fell 10.15% and the Financial Select SPDR ETF (XLF) lost 6.1%. The Select Health Care Sector SPDR Fund ( XLV ) declined 3.6%
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 11.2% last week and the ARK Genomics ETF ( ARKG ) fell 10.1%. TSLA stock remains among the top holdings in Ark Invest’s ETFs.
Top Five Chinese Stocks to Watch Now
Apple stock
Apple shares closed near weekly lows, but finished down just 0.1% to 150.54. On Wednesday, AAPL stock hit resistance near its 10-week and 40-week lines and has rebounded to recent lows. But the relative strength line hit a new high on Friday. Apple stock still has a buy point at 176.25, but the first test will retake its 50-day and 200-day lines.
LLY Stock
Shares of Eli Lilly rose 0.9% to 311.60 last week. Shares rose nearly 5% on Thursday, following positive drug news and an analyst update. LLY is that the stock is on the wrong side of its 50-day line, hitting resistance on Friday. But the RS line is going further. The drug giant has a buy point of 335.43, according to MarketSmith analysis. There is a potential trend entry slightly above the 50-day line, but it is not a good time to make any purchases.
Stock ENPH
Enphase shares fell 12.1% last week to 279.49, cutting its 50-day line modestly and just shy of recent lows. Ideally, ENPH stock would consolidate for a while, perhaps forge a new base.
PDD stock
Shares of Pinduoduo sank 8.5% to 60.08, breaking below its 21-day line and approaching its 50-day. Shares of PDD have given up nearly all of their gains since the Chinese e-commerce giant reported blowout results in late August, briefly breaking out.
But the RS line is still near 52-week highs. A pullback to the 50-day line could be bullish, with a new base perhaps forming.
Of course, China risks are always high, while PDD stock is an outlier among e-commerce names or Chinese stocks in general.
The Fed may have gone too far as S&P 500 tests lows
Stock ALB
Albemarle shares slipped 6.1% to 269.69 in the past week, but found support at its 50-day line on Friday. ALB shares are still above a 250.25 buy point from a small handle in early August, while gains back and forth from an alternate entry at 273.78 ‘a massive cup base with handle. There is no clear entry for ALB shares right now.
Lithium prices are high and will likely remain so indefinitely with increasing demand for electric vehicles and limited lithium production. But there’s no doubt that ALB shares and other lithium plays can be highly volatile, subject to large selloffs.
Tesla stock
Tesla shares fell 9.2% to 275.36, with even greater losses since Wednesday’s peak. Shares of TSLA broke below its 200-day and 50-day lines, but held above recent lows. The electric vehicle giant now has a legitimate consolidation with a 316.74 buy point within a much deeper consolidation. On a weekly chart, Tesla stock has an entry at 313.90.
The RS line had been trending higher until late last week.
China’s weekly sales data, likely to be released on Tuesday, may allay or reinforce Tesla’s demand fears there. Third quarter global production and deliveries data will follow in early October.
Stock market analysis
The stock market suffered another week of heavy losses. The Dow Jones edged off its June lows on Friday, along with the NYSE Composite. The Nasdaq, S&P 500 and Russell 2000 haven’t, but they only need one more bad day to drop.
Could we get a rebound? Of course, the market looks oversold by several measures, while the June lows are a logical place for a bounce attempt. The CBOE Volatility Index rose to a three-month high on Friday, although the market fear gauge is not at extreme levels.
Of course, a rebound doesn’t have to come immediately. And a good day or two won’t mean much if the indexes resume selling quickly.
Any stock market rebound would likely need Treasury yields and the US dollar to pause or pull back.
In recent weeks, the market’s gains, including the daily, have been lackluster and low-volume, followed by heavy selling.
There is a strong possibility that the bear market will take another major leg down. Even when the market finally bottoms out, it could take a long time to go up.
What could change the dynamic? On September 30, the Federal Reserve will get the August PCE index, its favorite gauge of inflation. The employment report for September will be released a week later. Positive readings would be a relief, but the Fed wants to see a sustained decline in core inflation and labor market weakness.
In the meantime, expect big warnings in the coming weeks. High labor costs, supply chain issues, rising interest rates, a rising dollar and a stagnant economy are a recipe for earnings disappointment.
Some sectors perform relatively well, but the emphasis is relative.
This includes pharmaceutical giants such as LLY stock, as well as other drugs, including certain biotechs and medical names. Pollution control still looks good. But even many stocks with RS lines that are rising or at new highs are teetering and on the wrong side of the 50-day and 200-day lines.
Just because a stock has held doesn’t mean it will continue to do so in a market correction. A large number of resistant stocks sold off suddenly last week. That includes growth stocks that are starting to sell off strongly, such as shares of Enphase and TSLA.
If these stocks take significant additional damage, this could mean a longer repair time at best. Again, the same could be said of the global market.
Time the Market with IBD’s ETF Market Strategy
what to do now
Investors should stay away. There are very few stocks that hold up, even the relative winners get crushed by the market correction.
Continue building your watchlists with an emphasis on relative strength. Almost all charts, with a few exceptions like LLY stock, will look terrible, but for now it’s fine.
If you’re looking for shorts, it’s probably best to wait for a bounce, with stocks or major indexes returning to key levels and hitting resistance. But also work on those potential lists.
Remember that it is very difficult to make money in a bear market. The moment of great gains will follow in the next strong market rally. Staying engaged and preparing for this uptrend is key.
Read The Big Picture every day to stay in sync 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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