Dow Jones futures will open on Sunday evening, with a large risk removed. Congress approved a temporary funding bill on Saturday, averting the government shutdown in just a few hours. Tesla deliveries are expected before Monday's opening, with several China-based EV competitors releasing their results on Sunday.
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 increases the likelihood that the rally will be a temporary bounce. The weakness on Friday was largely due to shutdown fears.
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 rushing to lower their forecasts for the third quarter. Nio (NIO), Li Auto(LI) and XPeng(XPEV) reported their September and third quarter sales on Sunday. EV giant BYDDF (BYDDF), is expected to report before the opening of Monday.
Tesla briefly flirted on Friday with an aggressive entry, while XPeng arguably offered 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.
Deal on Government Shutdown
The House and Senate passed a continuing resolution for 45 days on Saturday, avoiding the shutdown by a few hours.
On Friday, the House rejected a bill with significant cuts in spending. Some 21 GOP hardliners wanted more. This measure would not have passed in the Senate.
Congress may be in the same position in 45 days, even though the government shutdown was avoided.
Dow Jones Futures
The stock market and Dow futures could be boosted by avoiding a government shut down.
Dow Jones Futures opens at 6 p.m. S&P futures, Nasdaq futures, and Dow Jones futures open at 6 p.m. ET.
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 mid-week, but since then the gains have only been marginal.
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 and Nasdaq have been trying to rally for three days, but they've not made any progress. The next day could be as early as Monday. However, these major indexes still have a long way to go before they reach 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 weak in 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% - the 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.
Zscaler Holdings PDD (PDD) and Zscaler Holdings Zscaler Holdings Zscaler Holdings
Innovator IBD ETF (FFTY), which is a growth ETF, grew 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. Tesla's deliveries will likely fall from the record-breaking 466,140 in Q2, as analysts rush to reduce their optimistic predictions. New consensus puts the number at 455,000. Tesla's temporary shutdowns, and a general slowdown in production, likely contributed to the 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 released a slightly revised Model Y on Sunday in China. The base and Long Range models have seen a slight increase in range. Model Y is facing a growing list of high-spec cross-over rivals in China, some at lower prices.
Tesla's stock price rose by 2.2% last week to $250.22. The shares briefly broke through the 50-day line before paring 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
On Sunday, EV pioneers Li Auto Nio and XPeng announced September and Q3 sales.
Li Auto again led the pack, delivering 36 060 vehicles in September. This was the sixth consecutive monthly record, and a 213% increase compared to a year ago. The third-quarter deliveries reached 105,108 units, which was above Li's target of 100,000-103,000.
XPeng sold 15,310 EVs during September. This was its eighth consecutive month-to-month increase and second highest total in its history, an 81% jump compared to a year ago. G6, a Tesla Model Y competitor, delivered 8,132 vehicles, or 53%, of the total. The Q3 sales reached 40,08 which is right in the middle between its target of 39,000-41,000.
Nio sold 15,642 cars in September. This is down from 20,462 in July and 19,329 in august. This was an increase of 44% compared to a year ago. The Q3 total of 55,432 was near the lower end of its target range (55,000-57,000).
Li Auto's stock fell 9.2% to a three-month low last week on reports that the automaker was offering discounts and finally joining the China Electric Vehicle price war. 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, thanks in part to its new models and export boom. 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 above the 50-day line occurs.
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 coming days, a follow-up day may still happen. There is no reason to expect that the rally will gain momentum if there is no government shutdown.
Spend the remainder of the weekend updating your watchlists and running screens. Stocks with high relative strength are the best to focus on.
You'll be able to benefit from the market rally if it lasts for several weeks or even months. You'll be happy you stayed largely out of the market if the 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.
The Big Picture is a daily read to keep up with market trends, leading stocks and sectors.