Dow Jones futures were little changed late Tuesday, along with S&P 500 futures and Nasdaq futures. The stock market rally closed narrowly mixed, retreating from opening gains. Zoom Video Communications (ZM) and APPS stock were key earnings movers overnight.
Sector rotation continued, with commodity plays in favor while software and medical names retreated.
Meanwhile, China names are trying to wake up. 360 DigiTech (QFIN) surged Tuesday, while NetEase (NTES) is setting up. Internet giants Pinduoduo (PDD), JD.com (JD) and Tencent (TCEHY) rebounded above their 50-day lines after a long slide. Nio (NIO) and Xpeng (XPEV) are leaving their 50-day lines in the dust, while rival Tesla (TSLA) seems stuck. But, like the web giants, the Chinese EV makers are a long way from old highs.
QFIN stock is on the IBD 50.
Zoom Video, Other Key Earnings
Zoom Video earnings were better than expected, with guidance also strong. Zoom stock, one of the biggest 2020 winners, rose 2% in overnight action. ZM stock fell 1.15% to 327.72 on Tuesday, far from its October peak of 588.84.
Digital Turbine earnings growth continues to boom while the mobile monetization specialist guided up on sales. APPS stock climbed 1.5% in extended trade, but that would still be below its falling 50-day line. Digital Turbine stock rose 2.2% on Tuesday.
Ambarella earnings topped views while the video processing chipmaker also guided up on sales. AMBA stock rose 4% overnight, signaling a bounce from near its 50-day line. An aggressive trader could view that as an early entry. AMBA stock edged up 0.75% to 101.13 on Tuesday.
HPE earnings beat views. But HPE stock fell 1.5% in extended action, signaling a move below its 50-day line. HPE stock climbed 0.7% on Tuesday to 16.07, just above its 50-day line and slightly below a 16.24 buy point from a base first cleared in late April.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures tilted higher while Nasdaq 100 futures edged lower.
Coronavirus cases worldwide reached 171.93 million. Covid-19 deaths topped 3.57 million.
Coronavirus cases in the U.S. have hit 34.13 million, with deaths above 610,000.
Stock Market Rally Tuesday
The stock market rally started Tuesday strong but the major indexes quickly gave up gains.
The ISM manufacturing index showed continued strong growth, though the employment gauge signaled slower hiring. The ISM indexes and similar gauges around the world shows heavy price pressures continuing.
Crude oil prices hit a two-year high as OPEC and its allies confirmed a gradual output hike in July, even as global oil demand ramps up. Energy stocks dominated the S&P 500’s biggest winners.
Abbott Labs (ABT) tumbled after the medical giant warned of weakness in Covid testing as the pandemic fades. That also dragged down Thermo Fisher (TMO), making them Tuesday’s two worst performers in the S&P 500. Dow giants Johnson & Johnson (JNJ) and UnitedHealth (UNH) also were drags on health care.
The Dow Jones Industrial Average edged up 0.1% in Tuesday’s stock market trading. The S&P 500 index lost a fraction. The Nasdaq composite retreated 0.1%. The small-cap Russell 2000, buoyed by energy and financial stocks, popped 1.1%
Growth, Sector ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 1.7%, boosted by QFIN stock. The Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.5%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.5%. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.15%, reversing early gains.
SPDR S&P Metals & Mining ETF (XME) popped 2.75% and Global X U.S. Infrastructure Development ETF (PAVE) advanced 1.3%. U.S. Global Jets ETF (JETS) rallied 1.2%. SPDR S&P Homebuilders ETF (XHB) was just above break-even.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) slipped 0.8% and ARK Genomics ETF (ARKG) retreated 0.6%. Both are just below their 50-day and 200-day lines, with the former about to cross below the latter. Tesla stock is the top holding across ARK Invest’s ETFs.
China Stocks Revive
China stocks have been out of favor for months. Part of that reflects weakness among highly valued growth stocks worldwide. Beijing crackdowns, especially on Alibaba (BABA), also weighed on many stocks. But weeks after regulators levied a record fine vs. Alibaba, sentiment may be improving.
BABA stock rose 2.6% Tuesday, though that’s below its 50-day line and well below its 200-day line. Tencent climbed 3.6%, JD.com jumped 5.9% and PDD stock soared nearly 12%, all breaking through their 50-day lines. But investors probably should wait for JD stock and its peers to build the right side of their bases and approach or carve proper buy points before jumping in.
Nio stock leapt 9.6% and Xpeng stock 7.7%, after both reported strong May sales early Tuesday. Nio signaled a chip-related production slowdown will be short-lived. Nio and XPEV stock reclaimed their 50-day lines last week, but even after Tuesday both are much closer to their recent lows after losing more than half their value.
Tesla stock, for its part, dipped 0.2% to 623.90, above its 200-day but below its 50-day. Tesla is facing a consumer backlash in China, while chip shortages and other supply issues could be a factor. Back in the U.S., Tesla has been reducing features, from radar to lumbar support, with chip woes apparently a factor.
So what China stocks are working now? QFIN stock skyrocketed 20% to 33.76, in a delayed reaction to 458% earnings growth reported late Thursday. 360 DigiTech had been working on a handle, but it wasn’t ready. That pseudo-handle was forming just above a 28.61 double-bottom buy point. In any case, QFIN stock is well extended from any entry right now. Investors could use 35.25 as an alternate buy point, though ideally QFIN stock would form a true handle.
Meanwhile, NTES stock edged up 0.55% to 118.58. NetEase has a handle with the midpoint just a few cents below the midpoint of the base, so it’s technically not valid. But investors could use 120.94 as an early entry. The official buy point is 134.43, according to MarketSmith.
Market Rally Analysis
The stock market rally had a disappointing session given the solid open, after the Dow Jones and S&P 500 index came within 1% of all-time highs. There have been a few days over the past week with the major indexes closing near session lows, but the daily swings have been relatively tame. There’s nothing really wrong with another sideways day. As long as the Nasdaq holds above its 50-day line, the general trend seems intact. The Russell 2000 continued its recent advance, moving toward highs.
Sector rotation remains in force.
In addition to Chinese names such as QFIN stock, oil and gas stocks were big winners, including new breakouts APA Corp. (APA), parent of Apache Oil, and Ovintv (OVV). Nucor (NUE) blasted out of a tight pattern, with some other steelmakers clearing shorting consolidations. Miners and fertilizer makers also had strong sessions. Boeing (BA) and other aerospace stocks continued their recent run.
On the downside, software edged down while many medicals slumped.
What To Do Now
The recent revival in growth stocks excited active investors, who tend to favor high-octane names. But so far it seems like that’s just part of an ongoing sector rotation. Make sure to have diversification in your leaders, so you aren’t too concentrated in, say, software or chips or miners or fertilizer. Try to buy stocks as close to entry points as possible. Doing so requires preparation by building up a watchlist. It also requires staying engaged, so you’re ready to act.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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