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Dow Jones futures: market rally gains momentum, but it still lacks; Tesla Leads in Profit Growth

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Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures, with Tesla earnings in the spotlight. The stock market rally added momentum on Wednesday, led by tech companies and smaller companies.




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But while the indices are showing strength, bottom fishing continues to lead the broad gains. At the moment, there remains a relative dearth of buying opportunities.

Tesla (TSLA) posted key earnings overnight, earnings per share topped, but margins were weak. Tesla shares rose slightly in active overnight trading.

Steel dynamics (STLD) and Alcoa (AA) began to increase revenues from the metallurgy and mining industry with the participation of the steel Nukor (NUE) and copper giant Freeport McMoran (FCX) early Thursday. United Airlines (UAL) landed with results after closing with american airlines (AAL) before opening on Thursday. COAG (CSX) topped rail revenues, with Union Pacific (UNP) early Thursday morning.

Alcoa’s profits and earnings beat expectations as the aluminum giant announced a $500 million share buyback. AA stock jumped overnight.

Profit and sales of Steel Dynamics topped the mark. STLD stock rose after an initial surge overnight.

United Airlines’ profits lagged far behind viewership, though revenue matched. UAL shares fell sharply in an extended move, while AAL shares declined marginally.

Shares of CSX rose strongly, signaling the break of the falling 50-day line thanks to strong results for the second quarter.

From CSX to Tesla stock, none of these stocks come close to a buy point. But they do provide some insight into the sector’s strength in a difficult economic environment.

Meanwhile, health insurers struggled Wednesday after Health (ELV), formerly Anthem, has warned of high medical costs. UnitedHealth (UNH), another one of these insurance companies, is on the IBD and IBD 50 leaderboards.

Dow Jones futures today

Dow Jones futures fell 0.2% from fair value. S&P 500 futures were also down 0.2%. Nasdaq 100 futures lost 0.3%. Tesla shares are the main component of the Nasdaq, while UAL shares are also included in the Nasdaq 100.

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


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stock market rally

The stock market rally continued to rise, although it was largely focused on technology companies and small caps.

The Dow Jones Industrial Average rose 0.15% in stock trading on Wednesday. The S&P 500 rose 0.6%. The small-cap Nasdaq and Russell 2000 composite index rose 1.6%.

August US crude oil prices fell 1.9% to $102.26 a barrel. September oil, now a new contract for the coming month, fell 0.9% to $99.88 a barrel.

US natural gas prices jumped 10.2% amid renewed fears that Russian gas supplies will not bounce back, pushing up demand for liquefied natural gas in the US. Shenier Energy (LNG) and Flex LNG (FLNG) both made bullish moves.

The 10-year Treasury yield rose 2 basis points to 3.04%.


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ETFs

Among the best Innovator ETFs, the IBD 50 ETF (FFTY) was up 0.2%, with FFTY impacted by a range of medical stocks. The Innovator IBD Breakout Opportunities (BOUT) ETF fell 0.3%. The iShares Advanced Technology & Software (IGV) ETF jumped 3.35%. The VanEck Vectors Semiconductor (SMH) ETF was up 2.35%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 5.1% and ARK Genomics ETF (ARKG) jumped 3.1%. TSLA shares make up the bulk of the Ark Invest ETF.

The SPDR S&P Metals & Mining ETF (XME) rose 0.25% with NUE, Steel Dynamics, Alcoa and Freeport-McMoRan as its main components. The Global X US Infrastructure Development ETF (PAVE) is up 1%. The US Global Jets ETF (JETS) rose 0.5% on UAL shares and large American Airlines assets. The SPDR S&P Homebuilders ETF (XHB) rose 0.55%. The Energy Select SPDR ETF (XLE) was up 1% and the Financial Select SPDR ETF (XLF) was up 0.4%. The Health Care Select Sector SPDR Fund (XLV) fell 1%.


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Tesla’s earnings

Tesla’s earnings beat revised second-quarter guidance, overshadowed by a long shutdown of its Shanghai plant and slow commissioning due to the Covid lockdown. Earnings rose 57% year-over-year to $2.27 per share. Revenue rose 42% to $16.93 billion.

Both were well below first quarter levels. However, analysts had expected Tesla’s earnings per share to be $1.81 on sales of $16.539 billion.

The gross margin of the automotive industry fell to 27.9% from 32.9% in the first quarter and 28.4% a year earlier.

Regulatory loans, which are essentially net income, fell to $344 million from $679 million in the first quarter and $354 million in the second quarter of 2021.

Tesla’s R&D spending fell to $667 million from $865 million in the first quarter but rose from $576 million a year earlier. The share of R&D in revenue continued to decline to 3.9% in the second quarter.

Tesla sold 75% of its bitcoins, allowing the electric car maker to generate positive cash flow in the quarter. CEO Elon Musk said during an earnings call that Tesla still owns some Dogecoin. Musk has long touted his own Dogecoin holdings, but has never said that Tesla owns any of those cryptocurrencies.

Tesla production should pick up after a consistent decline in the second quarter, especially as production pauses in Shanghai and Berlin end. Automotive and electric vehicle industry production should also pick up as chip shortages and other supply chain problems ease.

Tesla said it still expects 50 percent annual vehicle growth over a multi-year period, but the earnings report was unclear as to what 2022 deliveries could be.

Musk has said the Cybertruck will release in mid-2023, but the dates for this and several other vehicles have been pushed back several times.

The 4680 battery, which is still in experimental production, is unlikely to enter mass production this year. Musk noted persistent technical problems, including a problem with the dry cathode.

Tesla shares

Tesla shares rose more than 1% overnight after initially rising 4% after the close and briefly turned negative.

Shares of TSLA rose 0.8% to 742.50 in the regular session on Wednesday, slightly above the 50-day and 21-day moving averages. Stocks have been making higher lows since the end of May. But Tesla shares are far from the November record of 1243.49.


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Elevance does not upgrade the rating of health insurance companies

The health insurance companies struggled. Elevance Health beat forecasts in the second quarter but warned that medical costs will remain high in the second half of 2022, especially for commercial clients. Shares of ELV, which lagged some of its peers, fell 7.6% to drop below the 50-day mark and close just above the 200-day mark.

UNH shares fell 2.6% but closed just above the buy point set last Friday on UnitedHealth’s data. Signa (CI) fell 2.9%, undermining the entry, although it bounced off its 50-day line.

senten (CNC) and Humana (HUM) declined slightly, but are comfortably in a buying range.

Medical stocks generally struggled on Wednesday.

Market Rally Analysis

The stock market rally continued to gain momentum. After retaking their 50-day moving averages on Tuesday, the Nasdaq, Russell 2000 and S&P 500 moved decisively above their late June highs on Wednesday morning, while the Dow Jones also broke its June highs.

But the indices have pulled back from session highs, be it European concerns, other news, or no news at all. The Nasdaq and the small capitals kept most of their significant morning moves. The S&P 500 cut modest gains back to about its June highs. The Dow retreated but still held above its 50-day line.

Meanwhile, the market rally is facing several other hurdles as the Nasdaq is not far from its peak in early June.

Losing stocks have been leading the offense in recent days, so there haven’t been many great setups and stocks giving buy signals in the last couple of days. The drop in medical stocks on Wednesday did not help.

Market ETFs or industry ETFs, such as those for software and biotech, look better than individual names in many cases. They also offer ways to access hard-hit growth names without making a specific bet.


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What to do now

The stock market rally is clearly showing strength. Investors should aim to capitalize on increased exposure.

One of the problems is that the market is rapidly approaching the earnings data flood and the Federal Reserve meeting next week. Investors must choose between building exposure now in anticipation of major market-moving news, or missing out on buying opportunities.

The lack of buying opportunities right now, perhaps a blessing in disguise, is another reason to carefully increase exposure.

Be prepared for an aggressive cut if the market turns down again.

Keep working on your watchlists. Focus on actionable games or promotions that are set up close to the point of purchase.

Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson to update the stock market and much more.

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