Dow Jones futures fell modestly Sunday night, along with S&P 500 futures and Nasdaq futures. Tesla (TSLA) launched a subscription option for its “Full Self-Driving” driver assistance program as an alternative to paying a big fee upfront. Crude oil futures dipped following Sunday’s OPEC+ production deal.
The stock market rally showed further weakness late last week, with Apple (AAPL) and other megacaps no longer providing cover. The major indexes are starting to pull back, especially the Nasdaq. But other indicators are sending more-negative signals, from declining market breadth to leading stocks coming under pressure.
Energy stocks ran out of gas, with Callon Petroleum (CPE) flashing multiple major sell signals as it plunged. Roku (ROKU) and Nvidia (NVDA) sold off, undercutting key short-term averages. ASML (ASML) reversed from record highs ahead of earnings this week. Finally, Tesla stock fell back toward long-term support as recovering former leaders continue July retreats.
Tesla stock, Nvidia and ASML are on IBD Leaderboard, while Roku stock is on the Leaderboard watchlist. ASML stock is on IBD Long-Term Leaders. Nvidia stock and ASML are on the IBD 50. CPE stock was Friday’s IBD Stock Of The Day because of its sell signals.
OPEC+ Production Deal
OPEC and key allies such as Russia agreed on an OPEC+ production deal to increase output by up to 400,000 a month starting in August. The aim is to phase out all pandemic-era production cuts by September 2022.
The United Arab Emirates will get a higher production baseline, starting in May. So will Iraq, Kuwait, Saudi Arabia and Russia.
Earlier this month, the UAE blocked a deal, demanding higher output for itself. Last week, Saudi Arabia and the United Arab Emirates agreed on a compromise. OPEC ministers from several countries, include Saudi Arabia and UAE, met online Saturday.
Crude oil futures fell slightly Sunday. Oil prices retreated last week, while many energy stocks sold off hard.
An OPEC+ production deal will boost crude oil supply. But an agreement also heads off the risk that the cartel would splinter, with various members ramping up output sharply.
Dow Jones Futures Today
Dow Jones futures fell 0.5% vs. fair value. S&P 500 futures lost 0.4% and Nasdaq 100 futures retreated 0.25%.
Coronavirus cases worldwide reached 191.19 million. Covid-19 deaths topped 4.10 million.
Coronavirus cases in the U.S. have hit 34.96 million, with deaths above 624,000.
Stock Market Rally Last Week
Stock market rally woes expanded and became more obvious as the week wore on.
The Dow Jones Industrial Average fell 0.5% in last week’s stock market trading. The S&P 500 index sank 1%. The Nasdaq composite slumped 1.9%, though the Nasdaq 100 only gave up 0.9%. The small-cap Russell 2000 tumbled 5.05%.
Apple stock rose 1% last week, the seventh straight weekly gain, even with Friday’s 1.4% retreat.
Growth and sector ETFs showed continued weakness.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 2%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 2.5%, even with major component Microsoft (MSFT) rising for yet another week. The VanEck Vectors Semiconductor ETF (SMH) slumped nearly 4% to below its 50-day line, reversing painfully from Wednesday’s all-time high. Nvidia and ASML stock are big SMH holdings.
SPDR S&P Metals & Mining ETF (XME) tumbled 6.6% to the lowest point since the end of April. Global X U.S. Infrastructure Development ETF (PAVE) sank 2.5%. U.S. Global Jets ETF (JETS) descended 6.5%, continuing a long slide. SPDR S&P Homebuilders ETF (XHB) retreated 3.1%. The Energy Select SPDR ETF (XLE) plunged 7.8% and the Financial Select SPDR ETF (XLF) dipped 1.6%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) skidded 7.2% last week and ARK Genomics ETF (ARKG) plunged 7.8%. ARKK fell through its 200-day moving average but held its 50-day line. ARKG slammed below levels. Tesla stock is the largest holding across ARK Invest’s ETFs.
Tesla FSD Subscriptions
Tesla is now offering drivers an FSD subscription, charging $199 a month instead of a flat $10,000 fee. That could open a big, steady revenue stream for the EV giant.
Despite the Full Self-Driving name, FSD does not offer full self-driving. It is a Level 2 driver-assist system requiring a human driver to be alert and ready to take over the wheel at any moment.
FSD subscriptions, long promised, come less than a week after Tesla released its FSD Beta V9, its latest test version of its FSD software, now only relying on vision. A select group of Tesla drivers are using FSD Beta on public roads. A slew of videos show that FSD Beta still requires substantial human interventions.
Tesla CEO Elon Musk, who had touted Beta V9 as being a huge advance, this past week said big improvements may come in the next version, or the next. Over the weekend, Musk said the Smart Summon feature, which he’s touted for years and used to justify some FSD price hikes, is mostly a “fun trick.”
Meanwhile, several other companies are testing L4 systems, sometimes without human drivers at all, including Google-owned Waymo, Argo, controlled by Ford (F) and Volkswagen (VWAGY), Amazon-owned Zoox and Cruise, majority owned by General Motors (GM).
Tesla stock started last week strong, rising 4.4% on Monday and moving Tuesday morning just below an aggressive 700.10 entry. But shares reversed lower, and kept sliding. For the week, TSLA stock gave up 1.9% to 644.22.
On the plus side, Tesla stock is holding just above its 200-day and 50-day lines. Compared to ARKK, many EV rivals or highly valued growth generally, Tesla stock hasn’t fallen too hard. Then again, the EV leader didn’t rally as much as many similar stocks from mid-May to late June.
The relative strength line for TSLA stock is not far above early June’s nine-month low.
Tesla earnings are due July 26.
Callon Petroleum Stock
CPE stock plunged nearly 10% on Friday and 24% for the week. The shale oil producer round-tripped a 43% gain and then some. Callon Petroleum also fell decisively below the 10-week line for the first time since the start of its big run in late 2020. Both are very strong sell signals. Investors who bought CPE stock out of the last base should have taken at least partial profits by the time it undercut its 21-day line. Even long-term investors might have wanted to cut Callon stock loose after last week.
As the XLE ETF showed, energy stocks tumbled this week as oil prices pulled back from multi-year highs. CPE stock and other energy stocks have sold off far more than oil prices. Then again, they ran up far more than oil prices.
Nvidia stock tumbled 9.8% last week, falling significantly below its 21-day exponential moving average and starting to approach its 50-day/10-week. The chipmaker has been one of the biggest leaders since late May.
Investors who bought between late May and early June might have taken some profits at the 21-day line or even earlier. Recent investors may want to sell out if Nvidia stock decisively breaks the 10-week line. Long-term holders have earned the right to hold NVDA stock longer if they wish.
ASML stock hit a record high on Wednesday, like the SMH ETF, but closed off highs. Shares of the Dutch chip-equipment maker then fell solidly on Thursday and Friday. ASML stock edged down just 0.6%, but closed near the low of its weekly range.
ASML earnings are on tap Wednesday. That report, along with laggard Intel (INTC) on Thursday, will be key for the semiconductor sector.
Roku stock fell 7.3% to 399.99 last week, after initially flashing an aggressive entry on Monday. Shares fell below their 21-day, where they found support on July 8, during a short-lived market retreat. Investors who bought as it bounced on July 8 are now sitting on losses of 5% or more.
Roku stock is holding, for now, above an early entry or double-bottom buy point at 397.79. The official buy point is 463.09, from a handle entry, according to MarketSmith analysis.
Market Rally Analysis
The Nasdaq composite fell below its 21-day line on Friday, the first clear sign of trouble on the major indexes. The Dow Jones and S&P 500 are approaching their 21-day averages. Apple stock and tech megacaps had masked weakness, but even they were starting to come back by the end of the week.
Meanwhile, the Russell 2000 has plunged below its 50-day line to a one-month low. Sector and growth ETFs showed similar weakness.
Stock market rally woes started to become obvious mid-week and especially Thursday and Friday. On Wednesday, Upwork (UPWK) and new IPO Figs (FIGS) plunged. Other breakouts and buying opportunities faltered, while big winners such as Nvidia stock and Callon Petroleum began selling off.
But the market rally has been struggling all month. The advance/decline line has been deteriorating for weeks. New lows are easily beating new highs on the Nasdaq, despite it being near all-time levels.
Ideally, Apple stock, Microsoft and a few extended megacaps would slow down for a few weeks while market breadth returns and breakouts work again. But investors should work on their watchlists, not their wish lists.
While that seems unlikely as Sunday night, don’t get excited if Dow Jones futures point to a strong open, or even if the major indexes rise solidly Monday morning. The Nasdaq reversed lower three days last week. What matters is how the stock market closes. That means not only the major indexes, but leading stocks and improving breadth as well.
What To Do Now
Investors have to be more defensive, hopefully slashing exposure over the past week or two. Get rid of losers and at least slash positions with modest gains that are starting to fade away. If stocks are falling back from solid gains, take at least partial profits. If you have stocks that are still doing well, you can hold on, but you still might want to sell some shares into strength. That can make it easier to hold a core position as, say, Nvidia stock, falls back toward the 50-day line.
This is not a good time to be making buys. There aren’t many good setups … and lately stocks setting up have been setups for too-eager investors. New buys aren’t working, which isn’t surprising with leaders and most of the market in retreat.
If you feel the need to make a mental health buy, make it a small position and have your exit strategy in hand.
It’s probably a better idea to wait for the market to improve before adding exposure. That could happen quickly: Many leading stocks are forming handles or finding support at moving averages, including Roku stock. But the market rally hasn’t given any indication that it’s ready to revive with broader participation.
Meanwhile, earnings season is heating up, another wild card for a shaky market. Make sure you know earnings dates for your various holdings.
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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