Rally Gains Steam, Still Missing This; Tesla Leads Earnings Movers

Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures, with Tesla earnings in focus. The stock market rally added to momentum Wednesday, led by techs and small caps.


But while the indexes are showing strength, bottom fishing continues to lead the broad-based advance. There remains a relative lack of buying opportunities for now.

Tesla (TSLA) headlined key earnings overnight, with EPS topping but margins weak. Tesla stock rose slightly  in active overnight trade.

Steel Dynamics (STLD) and Alcoa (AA) kicked off metal and mining earnings, with steelmaker Nucor (NUE) and copper giant Freeport-McMoRan (FCX) due early Thursday. United Airlines (UAL) touched down with results after the close with American Airlines (AAL) due before Thursday’s open. CSX (CSX) led railroad earnings, with Union Pacific (UNP) out early Thursday.

Alcoa earnings and revenue topped views, with the aluminum giant announcing a $500 million buyback. AA stock jumped overnight.

Steel Dynamics profit and sales topped. STLD stock rose modestly after initially popping overnight.

United Airlines earnings fell well short of views, though revenue was in line. UAL stock fell sharply in extended action, while AAL stock retreated modestly.

CSX stock rose solidly, signaling a move over its falling 50-day line, on strong Q2 results.

From CSX to Tesla stock, none of these stocks are near buy points. But they do provide some indication of sector strength in a difficult economic environment.

Meanwhile, health insurers struggled Wednesday after Elevance Health (ELV), formerly Anthem, warned of high medical costs. UnitedHealth (UNH), Another of those health insurers, is on IBD Leaderboard and the IBD 50.

Dow Jones Futures Today

Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures also sank 0.1%. Nasdaq 100 futures lost 0.2%. Tesla stock is a major Nasdaq component while UAL stock also is in the Nasdaq 100.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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Stock Market Rally

The stock market rally extended gains, though they were weighted heavily toward techs and small caps.

The Dow Jones Industrial Average edged up 0.15% in Wednesday’s stock market trading. The S&P 500 index climbed 0.6%. The Nasdaq composite and small-cap Russell 2000 popped 1.6%.

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August U.S. crude oil prices fell 1.9% to $102.26 barrel. September crude, now the new front-month contract, sank 0.9% to $99.88 a barrel.

U.S. natural gas prices leapt 10.2% amid renewed concerns that Russian gas supplies won’t return to normal, spurring more demand for U.S. liquefied natural gas. Cheniere 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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Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.2%, with a number of medical stocks weighing on the FFTY. The Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.3%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.35%. The VanEck Vectors Semiconductor ETF (SMH) popped 2.35%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) leapt 5.1% and ARK Genomics ETF (ARKG) 3.1%. TSLA stock is a major holding across Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) edged up 0.25%, with NUE stock, Steel Dynamics, Alcoa and Freeport-McMoRan all notable components. The Global X U.S. Infrastructure Development ETF (PAVE) rose 1%. U.S. Global Jets ETF (JETS) ascended 0.5%, with UAL stock and American Airlines big holdings. SPDR S&P Homebuilders ETF (XHB) advanced 0.55%. The Energy Select SPDR ETF (XLE) rallied 1% and the Financial Select SPDR ETF (XLF) inched up 0.4%. The Health Care Select Sector SPDR Fund (XLV) sank 1%.

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Tesla Earnings

Tesla earnings beat adjusted views in a second quarter marred by lengthy Shanghai plant shutdown and slow ramp-up due to Covid lockdowns. Earnings rose 57% vs. a year earlier to $2.27 a share. Revenue climbed 42% to $16.93 billion.

Both were significantly below Q1’s levels. However, analysts had expected Tesla earnings per share of $1.81 on sales of $16.539 billion.

Automotive gross margin fell to 27.9% from 32.9% in Q1 and 28.4% a year earlier.

Regulatory credits, which are essentially pure profit, fell to $344 million vs. $679 million in Q1 and $354 million in Q2 2021.

Tesla spending on research and development fell to $667 million vs. $865 million in Q1, but up from $576 million a year earlier. As a share of revenue, R&D continued to slide to just 3.9% in Q2.

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Tesla sold 75% of its Bitcoin, a move that allowed the EV maker to be cash-flow positive in the quarter. CEO Elon Musk, on the earnings call, said Tesla still owns some Dogecoin. Musk has long touted his own Dogecoin holdings, but has never said Tesla owned any of that cryptocurrency.

Tesla production should ramp up from Q2’s sequential decline, especially when capacity-improving output pauses wrap up in Shanghai and Berlin. Industrywide auto and EV production also should pick up as chip shortages and other supply chain woes ease.

Tesla said it still expects 50% annual vehicle growth over a multiyear period, but the earnings release didn’t provide clarity on what 2022 deliveries might be.

Musk said the Cybertruck will be out in mid-2023, but deadlines for that vehicle and several others have slipped several times.

The 4680 battery, still in pilot production, does not appear likely to be in mass production this year. Musk noted ongoing technical challenges, including the dry cathode issue.

Tesla Stock

Tesla stock rose more than 1% overnight after initially popping 4% after the close and briefly turning negative.

TSLA stock edged up 0.8% to 742.50 in Wednesday’s regular session, slightly above its 50-day and 21-day moving averages. Shares have been making higher lows since late May. But Tesla stock is far from November’s record 1,243.49.

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Elevance Doesn’t Elevate Health Insurers

Health insurers struggled. Elevance Health beat Q2 views, but warned that medical costs will remain high in the second half of 2022, especially for commercial customers. ELV stock, which had been lagging some of its peers, plunged 7.6%, diving below its 50-day line and closing just above its 200-day.

UNH stock fell 2.6%, but closed just above a buy point cleared last Friday on UnitedHealth earnings. Cigna (CI) sank 2.9%, undercutting its entry, though it bounced from near its 50-day line.

Centene (CNC) and Humana (HUM) fell modestly, but are comfortably in buy range.

Medical stocks in general struggled on Wednesday.

Market Rally Analysis

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

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But the indexes backed off session highs, whether on European concerns, other news, or no news at all. The Nasdaq and small caps held onto much of their sizable morning moves. The S&P 500 pared modest gains to around its June peaks. The Dow Jones retreated, but still held above its 50-day line.

Meanwhile, the market rally faces several other hurdles, with the Nasdaq not far from its early June peak.

Beaten-down names have been leading the charge in recent days, so there aren’t a lot of great setups and stocks flashing buy signals in the past couple of days. Medical stocks retreating Wednesday didn’t help.

Market ETFs or sector ETFs, such as for software and biotechs, in many cases look better than individual names. They also offer ways to gain exposure to 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 be looking to take advantage by increasing exposure.

One concern is that the market is running up right into a flurry of earnings and the Federal Reserve meeting next week. Investors have to choose between ramping up exposure now ahead of big market-moving news, or to let buying opportunities pass by.

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

Be ready to aggressively scale back if the market reverses lower again.

Keep working on watchlists. Focus on actionable plays or stocks setting up close to buy points.

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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