Author: Don Obrien

Dow Jones Futures Slash Losses On Merck Covid Drug After Latest Stock Market Reversal

Dow Jones futures edged lower early Friday, along with S&P 500 futures, but well off overnight lows, while Nasdaq futures turned higher. Dow stock Merck (MRK) jumped on an oral Covid-19 drug that significantly reduced hospitalization or death risks. Congress delayed a vote on a bipartisan infrastructure bill while China EV makers reported third-quarter sales as Tesla deliveries loom.


The stock market made another lackluster rebound attempt Thursday, reversing lower and closing at session lows once again, despite Congress avoiding a government shutdown.

Retailers were big losers Thursday, amid weak earnings from CarMax (KMX) and Bed Bath & Beyond (BBBY). But there were broad-based losses once again.

Among the tech titans, Apple (AAPL) and Facebook (FB) are starting to live below the 50-day line, while (AMZN) is below the 200-day line. Microsoft stock and Google parent Alphabet (GOOGL) are starting to get comfortable under the 50-day line, looking a lot like the Nasdaq composite.

Snap (SNAP), Nvidia (NVDA) and AMD (AMD) rebounded toward their 50-day lines but all closed below that key level.

Tesla (TSLA) could report third-quarter deliveries as soon as Friday, with buzz building about a strong figure. Tesla stock dipped Thursday but is holding strong in a buy zone.

Xpeng (XPEV) reported September sales tripled vs. a year earlier, with Q3 deliveries easily beating views. Nio (NIO) deliveries rebounded last month, easily beating lowered views. Li Auto (LI) also topped Q3 views, though chip woes took a toll in September. Nio stock, Xpeng and Li Auto rose early Friday after climbing Thursday. But the China EV stocks are near multi-month lows.

China EV and battery giant BYD (BYDDF) will likely report next week. BYD stock has pulled back in the past few weeks but is still near record highs.

Tesla stock, Snap, Nvidia, Microsoft, Google and Microsoft (MSFT) are on IBD Leaderboard. Google and Microsoft stock are on IBD Long-Term Leaders. Google stock is on the IBD 50 as well.

Government Shutdown Averted

President Joe Biden signed a short-term funding bill Thursday evening, averting a partial government shutdown by a matter of hours. The Senate and House approved funding through Dec. 3. Congress still needs to approve a debt limit hike to avoid a government default, with Republicans insisting that Democrats pass it on their own. Treasury Secretary Janet Yellen said this week that Oct. 18 is the deadline, though the Congressional Budget Office suggests late October or early November is the drop-dead date for a default.

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Infrastructure Vote Delayed

But the fate of the bipartisan $1 trillion infrastructure bill is in doubt. After House Speaker Nancy Pelosi publicly stated well into Thursday that a vote would happen that, it was called off late in the evening. The House may try again on Friday.

Many progressives had vowed to oppose the infrastructure deal. They want significant progress, or outright passage, of another, partisan tax-and-spending bill first. With Democrats holding only a three-seat majority in the House, and only a handful of Republicans likely to back the infrastructure bill, a high-profile defeat seemed likely if the vote had gone ahead.

Democratic leaders are trying to get centrist members to go along with $2 trillion or more in reconciliation bill spending. That would be a big drop from the long-touted $3.5 trillion, but up from the $1 trillion-$1.5 trillion that moderates have supported.

Merck Jumps On Covid Oral Antiviral

Merck (MRK) will seek emergency use authorization for their Covid oral antiviral treatment for Covid-19, citing “compelling results” in trials. The drug, molnupiravir, cut the risk of hospitalization or death by 50% for patients with mild or moderate cases of Covid-19, Merck and partner Ridgeback Biotherapeutics said.

Merck stock, a Dow Jones component, jumped 8%. Meanwhile, coronavirus vaccine makers Moderna (MRNA) and BioNTech (BNTX) fell 4%.

Dow Jones Futures Today

Dow Jones futures fell a fraction vs. fair value, well off overnight lows. S&P 500 futures edged lower and Nasdaq 100 futures climbed 0.1%.

The 10-year yield fell four basis points to 1.49%.

Zoom Video (ZM) and Five9 (FIVN) agreed to terminate their merger deal, after FIVN shareholders failed to approve the $14.7 billion takeover. Regulators were reviewing the deal, with Zoom’s China ties posing a potential national security risk. Zoom’s plunging stock price since the deal was announced made the deal unattractive to FIVN shareholders. ZM stock was little changed overnight while Five9 fell modestly.

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

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Thursday

The stock market once again opened higher but struggled to advance, closing near session lows for a third straight session.

The Dow Jones Industrial Average tumbled 1.6% in Thursday’s stock market trading. The S&P 500 index sank 1.2%. The Nasdaq composite retreated 0.4% after trading higher for much of the session. The small-cap Russell 2000 lost 0.9%.

The 10-year Treasury yield dipped 1 basis point to 1.53%, holding near recent peaks. Crude oil prices edged higher, while natural gas prices rose sharply yet again.

Apple stock and Microsoft fell nearly 1%. Facebook stock, Google and Amazon lost just a fraction. All are down sharply for the week.

Growth ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slipped 0.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 2.2%. The iShares Expanded Tech-Software Sector ETF (IGV) closed just below break-even. Microsoft is a major component, while Snap stock is also a holding. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.1%, with Nvidia and AMD stock helping to boost SMH.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) climbed 0.7% and ARK Genomics ETF (ARKG) 1.15%, but both are near multi-month lows. Tesla stock is the top holding across ARK Invest ETFs.

Sector ETFs

SPDR S&P Metals & Mining ETF (XME) edged up 0.2% while the Global X U.S. Infrastructure Development ETF (PAVE) retreated 2.2%. U.S. Global Jets ETF (JETS) descended 1.7%. SPDR S&P Homebuilders ETF (XHB) skidded 3.2%, with builders, suppliers and housing-related retailers such as RH and Williams-Sonoma all losing ground. The Energy Select SPDR ETF (XLE) gave up 1.5% and the Financial Select SPDR ETF (XLF) 1.6%.

The SPDR S&P Retail ETF (XRT) tumbled 4.75% on Thursday. CarMax plunged 13% on its earnings miss, with AutoNation slumping 6%. Both tumbled below buy points. BBBY stock crashed 22% to a 52-week low after missing and guiding lower on supply-chain woes, on the heels of Nike (NKE) and RH (RH). Along with a Kohl’s (KSS) downgrade on supply-chain issues, a slew of retailers sold off, including Macy’s (M), Williams-Sonoma (WSM), Bath & Body Works (BBWI), Gap (GPS), Revolve (RVLV) and more.

Apparel makers also were big losers, including Hanesbrands (HBI).

Tesla Deliveries

The EV giant will report third-quarter deliveries and production figures as soon as Friday, though they could come over the weekend or as late as next Tuesday. Tesla deliveries will hit roughly 232,000, according to the latest, upwardly revised analyst consensus. Tesla sold the Model Y in Europe for the first time, likely boosting sales in that region. Tesla exported most of its Shanghai production in July and August, mostly to Europe, but September looks to be a big figure.

Chip shortages may be restraining Tesla production, but if so it’s only slowing the growth in output so far. Meanwhile, global auto production has plunged, boosting Tesla demand and pricing.

Tesla stock dipped 0.75% to 775.48 on Thursday, holding comfortably in range from a 764.55 handle buy point.

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Nio Deliveries Rebound, Xpeng, Li Auto Top Views

Nio regained its title as the highest-producing China EV startup, at least for September. It reported monthly deliveries of 10,628, up 126% vs. a year earlier. That includes 5,260 ES6 SUVs, 3,390 EC6 crossovers and 1,978 ES8 large SUVs.

September’s total was a big boost from 7,931 in July and just 5,880 in August, amid chip woes. For Q3, Nio sold 24,439 electric vehicles, beating its lowered Sept. 1 target of 22,500-23,500.

Xpeng reported September deliveries of 10,412 EVs, up 199% vs. a year earlier and 44% vs. August. Q3 deliveries reached 25,666, up 48% vs. Q2.

Li Auto reported September deliveries of 7,094 Li One SUVs, up 102.5% vs. a year earlier. But that’s down from July and August Q3 deliveries totaled 25,116. That tops the recently lowered guidance for 24,500 due to chip shortages.

Nio and Xpeng make EVs, while Li Auto’s Li One has a small gas engine to extend range.

BYD, which has been ramping up output, should easily outstrip Nio, Xpeng and Li Auto sales combined for September.

Also, Nio began selling its ES8 in Norway on Thursday, joining rivals Xpeng and BYD in that key EV market.

Early Friday, Nio stock rose about 2%. So did XPEV stock. Li Auto stock climbed 1%. All three are near recent lows and below key moving averages.

BYD stock climbed 2.8% on Thursday, approaching its rising 50-day line.

Market Analysis

The S&P 500, after an inside day Wednesday, undercut Tuesday’s low and came within a point of undercutting its Sept. 20 low. It was the worst close since June 30. S&P 500 futures suggest that the benchmark index will undercut its Sept. 20 low on Friday.

The Dow Jones is still above its Sept. 20 low, but then it never reclaimed its 50-day line last week. The Russell 2000 is back below its 200-day line.

The Nasdaq composite tried to rebound but faded to just above its Aug. 19 low. With tech giants such as Apple slumping and key sectors such as chips and software retreating, the Nasdaq has lost its upward momentum.

The FFTY is now down 8.2% or so for the week.

The major indexes are all below their 50-day moving averages, trending lower over the past several weeks. The Nasdaq’s 21-day line is about to undercut its 50-day, with the S&P 500 already suffering that short-term bearish cross.

Leading stocks, with a few exceptions like Upstart (UPST) or Tesla stock, are trying to hang on or heavily damaged.

When It’s Time To Sell Your Favorite Stock

What To Do Now

Investors have little or no reason to increase exposure. When the stock market is living below the 21-day and 50-day line, good things aren’t happening. The general trend remains weak. Could Thursday’s low be the bottom, and the market rally roars back to record highs from here? Sure, but we also could be on the cusp of a market correction.

Most of the money is made in strong market uptrends. Making big bets against long odds is a strategy for heavy losses.

Keep your exposure light, focusing on stocks that are working or are longer-term winners. Focus on building up your watchlists and preparing for the next moneymaking market.

Most of all, it’s an important day to read The Big Picture.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.


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Oliver Bolt

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