Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally had a strong response Tuesday to another Target (TGT) earnings warning, rebounding from early lows to close higher.
China EV and battery giant BYD (BYDDF) will supply batteries to Tesla (TSLA), a BYD executive said Wednesday local time, after months of speculation. That comes as BYD vehicle sales pass Tesla. Investors may get more clarity on Tesla China sales before Wednesday’s open.
VRTX stock, Ulta Beauty (ULTA), ZIM Integrated Shipping (ZIM), Albemarle (ALB), Ashland Global Holdings (ASH), TimkenSteel (TMST) and Chevron (CVX) are stocks in or near buy zones. Vertex Pharmaceuticals (VRTX), Ulta Beauty and Albemarle are in handles. ZIM stock is flirting ASH stock is below an official buy point but arguably actionable now. TMST stock broke out on Tuesday while Chevron is holding in a buy range.
The relative strength lines for these stocks are at or near highs. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
ALB stock is on IBD Leaderboard, while Ashland stock is on the Leaderboard watchlist. ZIM stock is on the IBD 50. CVX stock is on the IBD Big Cap 20. Vertex Pharmaceuticals was IBD Stock Of The Day. The video embedded in this article discussed Tuesday’s market action and analyzed TimkenSteel, Chevron and ULTA stock.
BYD-Tesla Battery Deal
BYD will supply batteries to Tesla, a senior BYD executive said in an interview with state-owned TV, according to CnEVPost.com. It’s a major validation for BYD as a battery supplier to third-party automakers. Tesla has relied on battery giant CATL for its China-made vehicles. There have been rumors for months that Tesla would use BYD Blade batteries, which are a specialized LFP battery.
That comes as Tesla is virtually assured of losing its EV crown in the second quarter to BYD, though that latter includes EVs and plug-in hybrids. So the Tesla-BYD battery deal is a little like Ford (F) agreeing to supply engines to General Motors (GM).
The China Association of Automobile Makers will likely release May auto sales data early Wednesday morning. In addition to industrywide EV and overall auto sales, investors will get Tesla China deliveries.
Tesla China output and deliveries in May definitely improved vs. April, when the Shanghai plant was closed for much of the month. Tesla production remained limited during May, though it’s picking up in the recent weeks and could hit full capacity sometime in June.
Most other automakers reported improving but-still constrained China production and deliveries last month. The big exception is BYD, which reported record sales in April and again in May thanks to its in-house battery and chip operations.
Tesla stock edged up 0.25% to 716.66 on Tuesday, rebounding from morning lows. While off late May’s 11-month lows, TSLA stock is well below its 50-day and 200-day moving averages.
BYD stock dipped 0.5% to 38.12. Shares have rallied strongly for the past four weeks, nearing a 41.34 buy point from a deep cup base.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures declined 0.1% and Nasdaq 100 futures lost 0.1%.
Stock Market Rally
Target said early Tuesday big markdowns to address surprise inventories will hit profit margins even harder than it forecast just a few weeks ago. That heightened concerns about consumer spending and the economy. But Target stock, which fell to 147.15 soon after the open, closed down just 2.3% to 155.98.
The stock market rally, which opened sharply lower, quickly erased losses and moved solidly higher.
The Dow Jones Industrial Average rose 0.8% in Tuesday’s stock market trading. The S&P 500 index advanced 0.95%. The Nasdaq composite climbed 0.9%. The small-cap Russell 2000 jumped 1.6%.
U.S. crude oil prices rose 0.8% to $119.41 a barrel.
The 10-year Treasury yield fell 7 basis points to 2.97%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) popped 2.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.65%. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 1.6%. The VanEck Vectors Semiconductor ETF (SMH) was up 0.8%.
SPDR S&P Metals & Mining ETF (XME) jumped 3.5%, with TimkenSteel stock a small component. The Global X U.S. Infrastructure Development ETF (PAVE) gained 1.65%. U.S. Global Jets ETF (JETS) ascended 1.3%. SPDR S&P Homebuilders ETF (XHB) edged up 0.4%. The Energy Select SPDR ETF (XLE) popped 3%, with CVX stock a major holding. The Financial Select SPDR ETF (XLF) rose 0.8%. The Health Care Select Sector SPDR Fund (XLV) closed 1.3% higher.
Stocks To Watch
ULTA stock rose 1.8% to 421.02, advancing despite the latest Target warning. Ulta Beauty stock has a cup-with-handle buy point of 426.93. Last month, shares of the beauty supplies retailer plunged in the wake of Target’s initial warning, but they bounced back powerfully on Ulta earnings.
ZIM stock climbed 1.9% to 68.52, flirting with clearing some short-term levels that one could treat as a quasi-handle. On a weekly chart, ZIM stock does have a tiny handle, offering a 68.63 buy point. But on a daily chart, the container-based shipping firm has a cup base with an official 75.81 buy point.
ALB stock edged up 10 cents to 257.89 on Wednesday. Shares of the lithium giant has a 273.78 handle buy point in a large cup base. In late May, ALB stock surged past a 248 early entry in the wake a second big earnings upgrade in a month, but then briefly tumbled below those levels a few days later.
ASH stock closed up 0.3% to 110.51, closing well off intraday lows. On Monday, the chemical additives firm got above a 111.15 flat-base buy point intraday, but closed below that level. An investor could use 108.95 as an early entry for Ashland stock.
TimkenSteel stock leapt 8.8% to 26.18, clearing a 24.90 cup-with-handle buy point, MarketSmith said. TMST stock is slightly extended. Specialty steel firms are standing out, with Howmet Aerospace (HWM) showing strong action. Other steelmakers are starting to bounce back.
Chevron stock advanced 1.9% to 180.21, a new closing high and moving up in a buy range from a 174.86 flat-base entry. CVX stock is less volatile than many energy names, and even now is just 5.9% above its 10-week line.
VRTX stock climbed 1.4% to 271.86. Vertex stock has a 276.10 cup-with-handle buy point, finding support at the 50-day line.
Market Rally Analysis
Key economic, business and political news are important for the stock market, but what really matters is the market reaction to that news.
Target’s previous warning on May 18 triggered a massive market sell-off, signaling the just-confirmed uptrend was in serious trouble. Two days later, the major indexes undercut their mid-May lows.
But on Tuesday, the current confirmed market rally responded well to the latest Target warning, rebounding after initially selling off. Even Target came off morning lows — above its late May lows after its initial profit warning. Other retailers slashed losses or even turned positive.
The major indexes, which undercut their 21-day moving averages Tuesday morning, rallied for solid gains.
The 10-year Treasury yield, falling back below 3% after big gains Monday, was quietly a key contributor to Tuesday’s upside reversal.
Still, the stock market rally hasn’t quite figured out if it wants to move higher or test May’s lows.
Extended sideways action could be positive. A number of handles have formed in the past few days. A longer pause would allow more handles and bases to develop, as well as let moving averages catch up.
If the major indexes move above their recent ranges, they’ll soon run up to the 50-day moving average. The S&P 500 is just below its 10-week line, with the Dow Jones just closing above that key level. The small-cap Russell 2000 is above its 50-day and 10-week averages.
Energy stocks continue to lead the market. A number of other sectors are trying to bounce back, including metals and mining plays such as TimkenSteel. Lithium plays such as Albemarle can be viewed as a metal mining play but also an energy stock. Drugmakers and big biotechs are generally holding up, such as Vertex stock. Even some retailers like Ulta Beauty are looking interesting.
But all of these non-energy sectors clearly need the market rally to at least hold up, and may struggle to make much headway without a broad advance.
What To Do Now
After Monday’s fade, Tuesday’s action was more positive. But with the market rally still in flux, investors should still keep overall exposure slim to modest. They also should keep individual positions small, at least to start. Consider taking partial profits relatively quickly, given the current market conditions.
If the market rally breaks above recent levels and the major indexes run past their 50-day lines, investors can take advantage of buying opportunities. But continue to gradually increase exposure.
Investors should keep their watchlists fresh. Some fertilizer names might be shoveled off to the side, with more attention paid to retail and steel names. Make sure you’re ready and aware when the market builds momentum.
Read The Big Picture every day to stay in sync with the 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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