Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, with Netflix subscribers in focus and Tesla results looming. The major indexes rebounded on Tuesday above some key levels after hitting resistance on Monday.
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Profits were broad-based, but there were few new buying opportunities.
Netflix ( NFLX ) jumped overnight on better-than-expected earnings and subscriber additions. Trucking giant JB Hunt Transport Services ( JBHT ) and egg producer Cal-Maine ( CALM ) also topped EPS Tuesday night.
Chip equipment giant ASML ( ASML ) reported early Wednesday.
Tesla ( TSLA ) reported earnings on Wednesday night. Tesla’s earnings should show an increase from the second quarter of 2021, but fall significantly from the first quarter, reflecting the Covid-related impacts on production in Shanghai. Tesla shares rose 2.1% on Tuesday to 736.59, above its 50-day line and just below some near-term resistance. But TSLA shares are well below their late 2021 peak of 1,243.49.
The video embedded in this article analyzes the market rally and discusses Li Auto (LI), Flex LNG (FLNG), and Synopsys (SNPS).
Dow Jones futures today
Dow Jones futures were even at fair value. S&P 500 futures rose. Nasdaq 100 futures gained 0.3%, with NFLX shares providing a boost.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Elon Musk loses to Twitter
Meanwhile, a Delaware Court of Chancery judge granted a fast-track trial in the Twitter ( TWTR ) lawsuit against Tesla CEO Elon Musk over his efforts to stop the Twitter acquisition. The trial will begin in October. Musk had asked for a delay until 2023, which would have put pressure on Twitter to come to an agreement. Although the decision was not on the merits of the case, it is a positive indication for Twitter. Musk may have to pay a large penalty — more than a $1 billion breakup fee — or possibly even have to close the $44 billion, $54.20 per share deal. That could force Musk to sell more TSLA stock.
Shares of Twitter rose 2.8% to 39.49, moving above its 50-day mark for the first time in two months.
Join IBD’s experts as they analyze active stocks on IBD Live’s stock market rally
Stock market rallies
The stock market rally rose solidly at the open and gained momentum, closing with big gains near session highs.
The Dow Jones Industrial Average rose 2.4% in trading on Tuesday, although Dow giants IBM ( IBM ) and Johnson & Johnson ( JNJ ) saw earnings decline. The S&P 500 jumped 2.8%. The Nasdaq Composite jumped 3.1%. The small-cap Russell 2000 jumped 3.5%.
U.S. crude oil prices rose 1.6 percent to $104.22 a barrel. Natural gas futures fell 2.9 percent on reports that Russia will restart its Nord Stream natural gas pipeline to Europe as planned. But Russian President Vladimir Putin signaled possible further delays late Tuesday.
The 10-year Treasury yield rose 6 basis points to 3.02%. The 2-year Treasury yield rose 8 basis points to 3.24%, with the yield curve still inverted versus the 2-year and 10-year notes.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 1.4%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gained 2.9%. The VanEck Vectors Semiconductor ETF ( SMH ) rose 4.6%, with shares of ASML the standout.
The SPDR S&P Metals & Mining ETF (XME) advanced 2.7% and the Global X US Infrastructure Development ETF (PAVE) advanced 3.7%. The US Global Jets ETF (JETS) rose 4.1%. The SPDR S&P Homebuilders ETF ( XHB ) rose 3.4%. The Energy Select SPDR ETF (XLE) gained 3.1% and the Financial Select SPDR ETF (XLF) gained 3%. The Healthcare SPDR Fund ( XLV ) rose 1.7%.
Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) jumped 4.2% and the ARK Genomics ETF (ARKG) jumped 5.2%. TSLA stock is a major holding in the Ark Invest ETF.
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Key wins
Netflix’s earnings beat viewership in the second quarter, while revenue missed slightly. Netflix subscribers fell by 970,000 compared to the company’s forecast of a loss of 2 million. The Internet TV streaming giant posted a gain of 1 million subscribers in the current quarter, despite reporting low earnings for the third quarter. The final season of “Stranger Things” came out in late Q2 and early Q3, which will likely help subscriber numbers.
Netflix shares jumped 8% in overnight trading. Shares of NFLX rose 5.6% to 201.63 on Tuesday, having rallied over the past few days but are still in a range after the first-quarter earnings report.
Netflix subscriber data is good news for streaming players like Roku ( ROKU ) and Disney ( DIS ).
JB Hunt’s earnings and revenue growth were better than expected as shipping stocks struggled amid weaker freight rates and demand, while diesel prices hit record highs. Shares in JBHT fell 1% in extended trade. The stock rose 3.8% to 174.46 on Tuesday after retracing its 50-day line last week.
Fellow trucking company Knight-Swift ( KNX ) and railroad giant CSX ( CSX ) are due Wednesday night.
Cal-Maine’s profits easily beat fiscal fourth-quarter targets, while revenue jumped 69%, the fourth straight quarter of accelerating growth, on the back of strong egg prices.
CALM shares rose 1% late. Shares fell 1.7% to 52.33 on Tuesday, but bounced off a 21-day line. CALM shares have a 60.05 buy point according to MarketSmith analysis, but would ideally form a handle.
ASML earnings are expected very early Wednesday morning, which kicks off results for semiconductor manufacturers. As demand for chips declines due to slower PC and smartphone sales, investors see demand for chip equipment weakening as well. Shares of ASML rose 5.25% to 498.36 on Tuesday, continuing a two-week rally from 52-week lows but still below the 50-day line.
Few chip-related plays are above their 50-day lines. But chip design software makers Synopsys and Cadence Design Systems ( CDNS ) are above their 50-day and 200-day lines, near flashing buy signals.
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Market Rally Analysis
After turning down from key resistance on Monday, the market rally rebounded strongly on Tuesday with higher volume compared to Monday. The Nasdaq bounced back above its 50-day line and intraday high on Monday to reach its highs since late June and early July. So did the small-cap Russell 2000.
The Dow Jones and S&P 500 rose above their 50-day lines and are nearing their late-June highs.
Could the market rally now decisively clear these resistance levels? This would mean that the market is at least in a tradable rally. Note that the early June highs are the next big hurdle.
Market breadth was strong on Tuesday, but there weren’t many new stocks breaking out or showing strong action. It was a day for bottom fishing, with hard-hit stocks rising but still well below old highs.
Still, it was nice to see the chip ETF ( SMH ) and software ( IGV ) move back above their 50-day lines. As with the major indexes, chip and software stocks peaked above their 50-day lines briefly this year, only to quickly bounce back.
Medical leaders, which reversed a downgrade on Monday, rebounded on Tuesday. AstraZeneca ( AZN ) moved into a buy zone, albeit on low volume.
Beauty stocks like elf Beauty ( ELF ), Ulta Beauty ( ULTA ), and Olaplex ( OLPX ) are showing strength, even if their charts aren’t perfect.
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What should we do now
This is a difficult moment. The major indices are starting to break through resistance. If this continues, investors may feel more confident about gradually increasing exposure. Earnings season heats up, however, with the Federal Reserve meeting next week.
These news events could push the market higher or send the indices sharply lower – or knock it back and forth. Individual stocks can crash on earnings in any case.
So if you add exposure, be prepared to pull back quickly.
Definitely work on your watchlists, spending extra time on top candidates for new entries.
Read The Big Picture daily to stay in tune with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and much more.
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