Dow Jones futures fell slightly on Tuesday night, along with S&P 500 and Nasdaq futures, with Square (SQ) main gains and Tesla (TSLA) among several EV plays active overnight.
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It was a wild day for the stock market boom, at least for Nasdaq and especially for speculative growth names like Tesla shares and rival China EV Nio (NIO). Nasdaq fell more than 3% during the day, but recovered with a modest loss. Bitcoin’s price plummeted for the second consecutive session.
Square earnings outpaced views, helped by its Bitcoin operations. But net revenue and purchasing volume have lost estimates. Recent IPOs Upwork (UPWK) and PubMatic (PUBM) also topped the views.
Square’s stock fell 5% late. SQ’s shares fell 4.3% on Tuesday after recovering from its 50-day line. Upwork stocks soared 19% and PubMatic jumped 9.5% overnight, after both rose sharply on Tuesday from key intraday levels. The UPWK has recovered from its 50-day line to end modestly high. PUBM closed with modest losses, but after falling below a point of purchase, making it very difficult to insure.
These actions show strength, spend points of purchase amid market turbulence
Nasdaq appeared to be exhibiting a vertical breach during the day, as it quickly passed its 50-day line. But the strong recovery for modest losses does not make the market direction clear. The Dow Jones and S&P 500 eliminated relatively modest losses to close just above break-even. The rise in the stock market could simply be a sector rotation, with rising yields and commodity prices stimulating a shift to mining, agricultural and financial stocks.
Dow Jones Components Caterpillar (CAT), Disney (DIS) and JPMorgan Chase (JPM) advanced, all extended from recent leaks. Microsoft (MSFT) fell further, but recovered from its 10-week line and closed above its 232.96 buying point.
Bitcoin’s price fell below $ 45,000 intraday, after reaching $ 58,000 on Sunday. The cryptocurrency rebounded to almost $ 49,000 overnight. Bitcoin is well above where it was before the market opened on February 8, when Tesla said it bought $ 1.5 billion in cryptocurrencies.
Tesla ricochets, workhorse break
Tesla’s shares fell 2% to 698.84 on Tuesday, but after falling as low as 619. The shares have still fallen nearly 11% so far this week and 11% below their 10-week line. TSLA’s shares rose modestly overnight, with ARK Invest’s Cathie Wood saying that ARK bought “a lot” on Tuesday. This follows a major buyout of Tesla shares 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 for the type of speculative growth that Cathie Wood focuses on.
Nio’s shares plunged 3.1% to 49.11 after slipping to 41.66. The stock fell 7.8% on Monday, stabbing its 50-day line. Nio’s shares rose overnight. Nio’s earnings expire on March 1.
But some EV stocks fared much worse. EV delivery van manufacturer Workhorse Group (WKHS) lost an important USPS vehicle contract to Oshkosh Corp. (OSH) WKHS stocks fell 47%, then continued to drop sharply overnight. Oshkosh’s shares rose 6.1% on Tuesday, then jumped into extended trading.
Churchill Capital (CCIV) fell 38%. Luxury EV startup Lucid Motors has confirmed that it will go public in a merger between SPAC and Churchill Capital on Monday night. CCIV shares have shot 468% since January 8, as Lucid SPAC rumors have increased. Churchill Capital increased modestly overnight.
Tesla’s shares are on the IBD Leaderboard, but fell from half to a quarter on Tuesday. Microsoft’s shares are on the Leaderboard and IBD Long-Term Leaders. Disney and Caterpillar shares are on SwingTrader.
Dow Jones Futures Today
Dow Jones futures fell 0.2% against fair value. S&P 500 futures plunged 0.25% and Nasdaq 100 futures plunged 0.35%.
Remember that overnight action on Dow futures and elsewhere does not necessarily translate into real trades in the next regular stock market session.
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Coronavirus News
Coronavirus cases worldwide reached 112.61 million. Deaths from Covid-19 reached 2.49 million.
Coronavirus cases in the USA reached 28.88 million, with deaths above 514,000.
Stock market rally on Tuesday
The stock market recovery started Tuesday with Nasdaq leading the way in sharp losses. But the main indexes have reduced losses, as Fed chief Jerome Powell said. Powell said there is a link between the Fed’s liquidity and asset prices. But he reaffirmed once again his commitment to the current aggressive monetary policy and stressed that strong employment growth is a major goal. Powell also said that the Fed is looking closely at issuing a “digital dollar”, but not significant technical and political issues.
The Dow Jones Industrial Average was a fraction higher in Tuesday’s stock market trading, just below the records. The S&P 500 index rose 0.1%. The Nasdaq compound dropped 0.5%.
Microsoft’s stock fell to 228.73 during the day, testing the 10-week line, but not with violent declines like many stocks on Tuesday, including Square. The stock also never hurt initial entries around 227-228. At the close, MSFT’s shares rebounded with a 0.5% loss to 233.27, above the official buying point of 232.96.
Growth stocks generally lost ground, even with large recoveries in the afternoon.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) fell 2%, while Innovator IBD Breakout Opportunities ETF (BOUT) fell 2.1%. IShares Expanded Tech-Software Sector ETF (IGV) declined 1.1%, with MSFT’s shares being the main component. The VanEck Vectors Semiconductor (SMH) ETF fell 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 during the day to just above the January 29 low and the 13,000 level rose and fell before it almost returned to breakeven.
We need to see how the market reacts in the coming days to put Tuesday’s stock in perspective.
Perhaps Tuesday will mark the beginning of a recovery for Nasdaq and big winners like Tesla and Nio shares. But sometimes a stock market rally finds support and then breaks it down. It happened in the early September liquidation, when Nasdaq reduced losses on the second day of a retracement, before falling on the third day to close below its 50-day line.
With the Dow Jones holding on as the shares of the real economy prosper, in many ways this looks like a strong sector rotation within a bull market.
What to do now
Investors should be somewhat defensive, especially in relation to high-value growth stocks. Nasdaq has shown a downward trend in recent sessions. Meanwhile, many growth stocks have damaged their charts in the past few days. Even before the recent setback, there were many good buying opportunities.
One reason for making partial profits when the Nasdaq was extended in late January to early February is to make retractions easier to control. Selling extended shares strongly can help you maintain a central position in the event of a retraction. If you sold some winners on Tuesday’s casualties, those initial partial profits at least increased the average selling price.
Don’t let a stock drop more than 7% -8% of its purchase price. Yes, if you had to sell on Tuesday’s low, you might regret it, at least for now, but the point is to preserve your capital, not expect a recovery.
In the meantime, keep working on the watch lists. The last few sessions have shown the value of diversifying leadership. Keeping some names like Disney would make the last few days less painful.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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