Dow Jones futures were little changed, along with S&P 500 futures and Nasdaq futures, with Square (SQ) headlining key earnings and Tesla (TSLA) among several EV plays active overnight.
It was a wild day for the stock market rally, at least for the Nasdaq and especially speculative growth names such as Tesla stock and China EV rival Nio (NIO). The Nasdaq plunged more than 3% intraday, but rallied back for a modest loss. The Bitcoin price plunged for a second straight session.
Square earnings topped views, helped by its Bitcoin operations. But net revenue and purchase volume missed estimates. Recent IPOs Upwork (UPWK) and PubMatic (PUBM) also topped views.
Square stock fell 4% late. SQ stock retreated 4.3% Tuesday after rebounding from its 50-day line. Upwork stock skyrocketed 18% and PubMatic jumped 11% overnight after both rallied sharply Tuesday from key levels intraday. UPWK rebounded from its 50-day line to finish modestly higher. PUBM closed for modest losses but after plunging below a buy point, making it very hard to hold.
The Nasdaq had looked like it was flashing a vertical violation intraday as it tumbled rapidly through its 50-day line. But the strong rebound to modest losses leaves the market direction unclear. The Dow Jones and S&P 500 erased relatively modest losses to close just above break-even. The stock market rally could simply be in a sector rotation, with rising yields and commodity prices spurring a shift into mining, agricultural and financial stocks.
Dow Jones components Caterpillar (CAT), Disney (DIS) and JPMorgan Chase (JPM) advanced, all extended from recent breakouts. Microsoft (MSFT) edged lower but rebounded from its 10-week line and closed above its 232.96 buy point.
The Bitcoin price fell below $45,000 intraday after topping $58,000 on Sunday. The cryptocurrency recovered to around $47,500 overnight. Bitcoin is well above where it was before the market open on Feb. 8, when Tesla disclosed it had bought $1.5 billion worth of the cryptocurrency.
Tesla Rebounds, Workhorse Crashes
Tesla stock fell 2% to 698.84 on Tuesday but after falling as low as 619. Shares are still down nearly 11% so far this week and 11% below its 10-week line. TSLA stock rose modestly overnight as ARK Invest’s Cathie Wood said ARK bought “a lot” on Tuesday. That follows a big Ark buy of Tesla stock on Monday and Wood talking up the company last week.
Tesla is ARK’s biggest holding across its ETFs and in many ways is a marker for the type of speculative growth plays that Cathie Wood focuses on.
Nio stock sank 3.1% to 49.11 after skidding as low as 41.66. Shares tumbled 7.8% on Monday, knifing through its 50-day line. Nio stock edged higher overnight. Nio earnings are due March 1.
But some EV stocks fared far worse. EV delivery van maker Workhorse Group (WKHS) lost a major USPS vehicle contract to Oshkosh Corp. (OSH) WKHS stock cratered 47%, then kept falling sharply overnight. Oshkosh stock rose 6.1% on Tuesday, then jumped in extended trade.
Churchill Capital (CCIV) crashed 38%. Luxury EV startup Lucid Motors confirmed it’ll go public in a SPAC merger with Churchill Capital late Monday. CCIV stock had skyrocketed 468% since Jan. 8, as Lucid SPAC rumors grew. Churchill Capital rose modestly overnight.
Tesla stock is on IBD Leaderboard, but cut from a one-half to a one-quarter position on Tuesday. Microsoft stock is on Leaderboard and IBD Long-Term Leaders. Disney stock and Caterpillar are on SwingTrader.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures edged lower. Nasdaq 100 futures fell 0.2%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally Tuesday
The stock market rally started Tuesday with the Nasdaq leading sharp losses. But the major indexes pared losses as Fed chief Jerome Powell spoke. Powell said there is a link between Fed liquidity and asset prices. But he once again reaffirmed his commitment to current aggressive monetary policy and stressed that strong job growth is a primary goal. Powell also said the Fed is looking closely at whether to issue a “digital dollar,” but not significant technical and policy issues.
The Dow Jones Industrial Average was a fraction higher in Tuesday’s stock market trading, just below record highs. The S&P 500 index edged up 0.1%. The Nasdaq composite fell 0.5%.
Microsoft stock fell as low as 228.73 intraday, testing the 10-week line but not with wild plunges like many stocks Tuesday, including Square. Shares also never undercut early entries around 227-228. By the close, MSFT stock recovered to a 0.5% loss to 233.27, above the official 232.96 buy point.
Growth stocks generally lost ground, even with big afternoon rebounds.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 2.1%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.1%, with MSFT stock the top component. The VanEck Vectors Semiconductor ETF (SMH) slid 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 tumbled intraday to just above the Jan. 29 low and the 13,000 level then moved up and down before nearly returning to break-even.
We’ll need to see how the market reacts in the next few days to put Tuesday’s action in perspective.
Perhaps Tuesday marks the start of a recovery for the Nasdaq and big winners such as Tesla and Nio stock. But sometimes a stock market rally will find support, then break it. That’s what happened in the early September sell-off, where the Nasdaq slashed losses on day two of a pullback before plunging on day three to close below its 50-day line.
With the Dow Jones holding up as real economy stocks thrive, in many ways this looks like a sharp sector rotation within a market rally.
What To Do Now
Investors should be somewhat defensive, especially with regards to high-value growth stocks. The Nasdaq has been trending lower over the past several sessions. Meanwhile, many growth stocks have damaged-looking charts after the past couple of days. Even before the recent pullback, there were a lot of good buying opportunities.
One reason to take partial profits when the Nasdaq was extended in late January to early February is to make pullbacks easier to handle. Selling extended stocks into strength can help you hold a core position through pullbacks. If you sold some winners at Tuesday’s lows, those early partial profits at least raised the average selling price.
Don’t let a stock get down more than 7%-8% from your purchase price. Yes, if you had to sell at Tuesday’s lows you might regret that, at least for now, but the point is preserve your capital, not hope for a recovery.
Meanwhile, make sure to keep working on watch lists. The past several sessions have shown the value of diversifying leadership. Holding a few names like Disney would have made the past few days less painful.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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