Dow Jones futures fell slightly Tuesday night, along with S&P 500 futures and Nasdaq futures, with Square (SQ) topping key earnings and Tesla (TSLA) among various sets of electric vehicles active at night.
It was a wild day for the stock market rally, at least for the Nasdaq and especially for speculative growth names like Tesla stocks and rival China EV. Child (NIO). The Nasdaq fell more than 3% intraday, but recovered with a modest loss. The price of Bitcoin plunged for the second consecutive session.
Square’s earnings topped views, helped by its Bitcoin operations. But net income and purchase volume fell short of estimates. Recent IPOs Upwork (UPWK) and PubMatic (PUBM) also beat views.
Square shares fell 5% late. Shares in SQ fell 4.3% on Tuesday after recovering from its 50-day line. Upwork shares soared 19% and PubMatic was up 9.5% overnight after both rose sharply Tuesday from key intraday levels. UPWK rallied from its 50-day line to finish modestly higher. PUBM closed with modest losses, but after falling below a buy point, making it very difficult to sustain.
These stocks show strength, pass buying points amid market turmoil
The Nasdaq appeared to be showing an intraday vertical violation as it rapidly fell through its 50-day line. But the strong rally to moderate losses leaves market direction unclear. The Dow Jones and S&P 500 erased relatively modest losses to close just above breakeven. The stock market recovery could simply be an industry rotation, with rising yields and commodity prices driving a shift toward mining, agricultural and financial stocks.
Components of Dow Jones Caterpillar (CAT), Disney (DIS) and JPMorgan Chase (JPM) advanced, all derived from recent breakouts. Microsoft (MSFT) was down but rebounded from its 10-week line and closed above its buy point of 232.96.
The price of Bitcoin fell below $ 45,000 intraday after breaking above $ 58,000 on Sunday. The cryptocurrency rallied to nearly $ 49,000 overnight. Bitcoin is well above where it was before the market opened on February 8, when Tesla revealed that it had bought $ 1.5 billion worth of the cryptocurrency.
Tesla bounce, workhorse crashes
Tesla shares fell 2% to 698.84 on Tuesday, but after falling to 619. The shares are still falling almost 11% so far this week and 11% below their 10-week line. TSLA shares rose modestly overnight as ARK Invest’s Cathie Wood said ARK bought “a lot” on Tuesday. That follows a large Tesla stock buy by Ark on Monday and Wood talking about the company last week.
Tesla is ARK’s largest stake in its ETFs and in many ways is a marker of the kind of speculative growth game that Cathie Wood is focused on.
Nio’s stock plunged 3.1% to 49.11 after skidding as low as 41.66. The stock fell 7.8% on Monday, topping its 50-day line. Nio shares rose overnight. Nio’s earnings are due March 1.
But some EV stocks fared much worse. Manufacturer of EV delivery vans Workhorse group (WKHS) lost a major USPS vehicle contract to Oshkosh Corp. (OSH) WKHS shares fell 47% and then continued to decline sharply overnight. Oshkosh shares rose 6.1% on Tuesday and then rose in an extended trade.
Churchill Capital (CCIV) plunged 38%. Luxury electric vehicle startup Lucid Motors confirmed that it will go public in a SPAC merger with Churchill Capital on Monday night. CCIV shares had soared 468% since January 8, as the Lucid SPAC rumors grew. Churchill Capital went up modestly overnight.
Tesla shares are on the IBD leaderboard, but fell from a half to a quarter position on Tuesday. Microsoft shares are in the leaderboard and long-term leaders of IBD. Disney and Caterpillar shares are on SwingTrader.
Dow Jones Futures Today
Dow Jones futures fell 0.2% against fair value. S&P 500 futures sank 0.25% and Nasdaq 100 futures fell 0.35%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.
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Coronavirus cases around the world reached 112.61 million. Deaths from Covid-19 exceeded 2.49 million.
Coronavirus cases in the US have reached 28.88 million, with deaths above 514,000.
Tuesday stock rally
The stock market rally began Tuesday with the Nasdaq leading heavy losses. But the major indices cut losses as Fed chief Jerome Powell spoke. Powell said there is a link between the Fed’s liquidity and asset prices. But he once again reaffirmed his commitment to the current aggressive monetary policy and stressed that strong job growth is a primary goal. Powell also said the Fed is closely looking at the possibility of issuing a “digital dollar”, but not major technical and political issues.
The Dow Jones Industrial Average was a fraction higher in Tuesday’s stock market trading, just below all-time highs. The S&P 500 Index was up 0.1%. The Nasdaq Composite fell 0.5%.
Microsoft shares fell as low as 228.73 intraday, testing the 10-week line but not with wild drops like many stocks on Tuesday, including Square. The shares also did not undermine anticipated entries around 227-228. At the close, MSFT shares recovered at a loss of 0.5% to 233.27, above the official buy point of 232.96.
Growth stocks generally lost ground, even with big rebounds in the afternoon.
Among the best ETFs, the Innovator IBD 50 (FFTY) ETF fell 2%, while the Innovator IBD Breakout Opportunities (BOUT) ETF sank 2.1%. IShares’ expanded software and technology sector ETF (IGV) fell 1.1%, with MSFT shares as the main component. The VanEck vectors (SMH) semiconductor ETF slipped 1%.
Reflecting more speculative story stocks, Ark Innovative ETF sank 3.3% and Ark Genomics ETF 3.05%.
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Stock market analysis
The Nasdaq fell intraday to just above the January 29 low and then the 13,000 level rose and fell before almost breaking even.
We will need to see how the market reacts in the coming days to put Tuesday’s action into perspective.
Perhaps Tuesday will usher in a rally for the Nasdaq and big winners like Tesla and Nio stocks. But sometimes a stock market rally will find support and then break it. That’s what happened in the early September sell-off, where the Nasdaq trimmed losses on day two from a pullback before sinking on day three to close below its 50-day line.
With the Dow Jones holding on as stocks in the real economy thrive, in many ways this looks like a strong rotation of the sector within a market rally.
What to do now
Investors should be somewhat on the defensive, especially regarding high-value growth stocks. The Nasdaq has been trending down for the last few sessions. Meanwhile, many growth stocks have damaged-looking charts after the last few days. Even before the recent pullback, there were plenty of good buying opportunities.
One reason to take partial gains when the Nasdaq spread in late January to early February is to make pullbacks easier to handle. Selling extended stocks strongly can help you maintain a central position during pullbacks. If you sold a few winners at Tuesday’s lows, those first partial profits at least raised the average selling price.
Don’t let a stock drop more than 7% -8% of its purchase price. Yes, if you were to sell at Tuesday’s lows, you might be sorry, for now at least, but the point is to preserve your capital, not wait for a recovery.
In the meantime, be sure to keep working on the watch lists. The last few sessions have shown the value of diversifying leadership. Sustaining some names like Disney would have made the last days less painful.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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