Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures. Nvidia (NVDA) and AMD stock fell overnight after the chip giants said that the U.S. government has imposed export restrictions on certain chip sales to China. On Thursday morning, China EV startups such as Nio will release August sales.
The stock market rally made a brief, feeble rebound attempt Wednesday, with the major indexes hitting resistance at the 50-day moving average before reversing lower.
Nvidia Stock Falls On China Curbs
Nvidia stock tumbled nearly 7% in overnight trade. The chip giant said in an SEC filing that the U.S. government has imposed new license requirements that bar certain advanced data-center chip sales to China and Russia. Nvidia said the U.S. cites concerns about “military end use.” Nvidia, which does not currently sell products into Russia, said the restrictions could affect $400 million in sales to China.
The U.S. government is is increasingly imposing curbs on high-end chip technology to China.
Nvidia rival Advanced Micro Devices (AMD) reported a similar U.S. notice over selling China various GPUs with AI uses. AMD stock fell 4% in late trade. Taiwan Semiconductor Manufacturing (TSM), which makes Nvidia chips, declined 2%.
The SMH ETF, of which all three chipmakers are a major part, slid 2% in late trading. Several other chip stocks fell modestly in the wake of the Nvidia and AMD news.
Pure Storage (PSTG) headlined earnings overnight. PSTG stock jumped on better-than-expected earnings as well as revenue guidance. Shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day line. PSTG stock may test a 31.62 buy point from a cup-with-handle base.
China EV Sales
Early Thursday, Chinese EV startups Nio (NIO), Li Auto (LI) and XPeng Motors (XPEV) will report August delivery data. EV and battery giant BYD (BYDDF) will likely report on Friday or Saturday. Nio stock, along with shares of Li Auto, Xpeng, BYD and Tesla (TSLA) are struggling right now.
With the market rally so weak, investors should be wary of new buys and acting to reduce exposure. But they should be looking for potential leaders for their watchlists.
Dow Jones Futures Today
Dow Jones futures fell 0.25% vs. fair value. S&P 500 futures sank 0.55% and Nasdaq 100 futures declined 0.9%, with AMD and Nvidia stock weighing on the S&P 500 and Nasdaq futures.
Stock Market Rally
The stock market rally tried to live up to its name at Wednesday’s open, but the major indexes quickly backed off, closing at session lows.
The Dow Jones Industrial Average lost 0.9% in Wednesday’s stock market trading. The S&P 500 index declined 0.8%. The Nasdaq composite fell 0.6%. The small-cap Russell 2000 also pulled back 0.6%.
U.S. crude oil’s price fell 2.3% to $89.55 a barrel.
The 10-year Treasury yield rose 2 basis points to 3.13%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.4%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) fell 0.7%. TSM, Nvidia and AMD stock are major SMH holdings.
SPDR S&P Metals & Mining ETF (XME) declined 0.8%. SPDR S&P Homebuilders ETF (XHB) retreated 1.2%. The Energy Select SPDR ETF (XLE) gave up 0.9%. The Health Care Select Sector SPDR Fund (XLV) dropped 0.6%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) nudged down 0.1% while ARK Genomics ETF (ARKG) climbed 1.3%. Tesla stock is a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark also owns some Nio and BYD stock.
Stocks To Watch
Enphase stock edged up 0.2% to 286.44 on Wednesday, still consolidating over the past few weeks, holding support at the 21-day moving average. That comes after shares surged on Enphase’s late July earnings. The blue RS line in the charts provided is holding right at record highs. That reflects ENPH stock’s outperformance vs. the S&P 500 index.
PDD stock jumped 7.2% on Wednesday to 71.30, clearing a 68.81 cup-base buy point, according to MarketSmith analysis. That follows Monday’s 15% spike on Pinduoduo earnings, with shares briefly clearing the buy point that day. The RS line for Pinduoduo stock is at consolidation highs, right at the best levels since last November. While PDD stock is in a buy zone, it’s 28% above the 50-day line.
NBIX stock rose 1.3% to 104.63, bouncing slightly from its 21-day line. Shares have pulled back slightly from the Aug. 9 high of 109.26. That high capped a big earnings breakout. NBIX stock could form a new base, but would be actionable from breaking a trendline in the current short consolidation. The RS line is at a 52-week high.
China EV Sales
Nio, Li Auto and XPeng report August deliveries before Thursday’s open. After all three China EV startups slightly topped 10,000 deliveries in July, Nio and XPeng may miss that mark in August, while Li Auto may not even hit 5,000.
Nio delivered 10,052 electric vehicles in July. On Aug. 28, Nio launched deliveries of the ES7 SUV. The ET5 sedan follows on Sept. 30, after the ET7 luxury sedan in March.
Nio stock rose 0.6% to 19.95 on Wednesday, hovering below the 50-day line. Shares are working on a 24.53 bottoming base buy point that would involve getting above the 200-day line.
Li Auto deliveries plunged in August, according to preliminary data, after hitting 10,422 in July. The Li One hybrid SUV, the automaker’s only vehicle until this week, has seen demand suddenly wither. Li Auto says the more-upscale L9, another hybrid SUV, is cannibalizing sales. L9 deliveries started on Tuesday, with Li Auto predicting 10,000 L9 deliveries in September.
LI stock dipped 0.1% to 28.77 on Wednesday, again hitting 200-day line resistance.
XPeng delivered 11,524 vehicles in July. Production capacity has grown but the lineup is getting stale. The G9 SUV should begin deliveries in the fourth quarter, set to replace the aging G3.
XPeng stock rose 1.4% on Wednesday to 18.52, after hitting a 22-month low on Tuesday.
Meanwhile, BYD will likely report August sales on Friday or Saturday. July sales of EVs and plug-in hybrids surged 222% vs. a year earlier to 162,350. There are indications that BYD will set another record in August.
In September, BYD will begin deliveries of the Seal sedan, a Tesla Model 3 rival starting for $10,000 less. In the next few days, BYD will begin Atto 3 deliveries in Australia, part of a massive international expansion that will include much of Europe.
On Monday, BYD reported first-half earnings tripled vs. a year earlier, with sales up 60%. That sent shares modestly higher.
But BYD stock plunged 7.8% on Tuesday, followed by a loss of 4.35% to 30.75 on Wednesday. Shares of the EV and battery giant have knifed below the 200-day moving average after hitting a record 43.61 on June 28.
The catalyst? Warren Buffett’s Berkshire Hathaway (BRKB) said on Aug. 30 that it sold 1.33 million H-shares on Aug. 24 in Hong Kong, less than 1% of its big BYD stock stake. Berkshire still owns slightly less than 8% of BYD, but there is concern that it’ll keep selling shares.
Tesla doesn’t break out China sales, but industry data suggest local sales topped 30,000 in August. That excludes exports to Europe and elsewhere. More complete industry data for Tesla will come later in September.
The wait time for a base-model Model Y in China is down to 1-4 weeks, according to Tesla’s website. Tesla Shanghai has just gotten a big capacity increase, but has demand kept pace? Li Auto and Xpeng have shown the importance of new or refreshed EVs in China, and Tesla’s two vehicles are no longer fresh.
Tesla stock dipped 0.75% to 275.61 on Wednesday. Shares are holding above the 50-day line, but falling from the 200-day and 21-day moving averages.
Market Rally Analysis
The stock market rally isn’t showing much fight. The major indexes rose Wednesday morning, but quickly hit a wall at the 50-day moving average. They backed off, ultimately closing at session lows.
The Russell 2000 and S&P 400 MidCap retreated to just above their 50-day line, though they finished slightly under their 10-week averages.
Energy plays bounced back somewhat, especially natural gas stocks, after some sharp losses Tuesday.
The Nasdaq getting back above the 50-day line is important, but it certainly wouldn’t be an all-clear signal for bulls. On the other hand, it wouldn’t take much of a decline to push the teetering market rally into a correction.
What To Do Now
The market rally remains under pressure for now, but the weakness is obvious. Investors should be looking to take profits and cut losses instead of adding exposure.
Work on your watchlists. Continue to look for possible setups, but make sure to keep track of quality stocks with high relative strength, even if the charts aren’t ripe yet. But stocks can outperform in a weak market until they suddenly falter. And relative winners can still be absolute losers.
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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