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Dow Jones Futures: Tesla Mixed Income; Elon Musk teases acquisitions, admits demand woes


Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. Tesla shares fell on mixed earnings even as CEO Elon Musk hinted at a TSLA buyback, but also acknowledged that the EV giant is seeing weakness in China and Europe.




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The stock market’s attempt to recover lost ground on Wednesday, as 10-year Treasury yields rose to a 14-year high.

Netflix (NFLX) led to a strong overall profit result, partially supporting the stock, but also some big losers.

Tesla (TSLA) earnings views topped slightly but fell in revenue. TSLA stock fell overnight as Musk’s demand outpaced buyback suggestions.

Lam Nghien (LRCX), Alcoa (AA), IBM (IBM) and Las Vegas Sands (LVS) was also reported late Wednesday, with Dynamic steel (STLD) on the faucet.

Lam Research Income and top revenue in terms of Q1 financial views. LRCX stock was little changed in overnight trading after gaining 2.5% on Wednesday, given a strong boost ASML (ASML) earnings and guidance before opening Wednesday.

Alcoa reported an unexpected loss while sales were flat. AA stock plunged in prolonged trading. Shares fell 5.3% on Wednesday.

IBM earnings and revenue both are at the top. IBM shares rose modestly overnight after falling 0.35% on Wednesday.

Las Vegas Sands reported a quarterly loss and slightly weaker-than-expected revenue. LVS stock eased slightly in extended trading after sliding 0.7% on Wednesday. Sands stock briefly broke out of its bottom in early October, but the market sell-off and Covid cases in China sent the stock plunging.

Steel Dynamics earnings fell slightly while revenue topped. STLD stock rose in overnight trading. Shares fell 1.3% to 80.68 on Wednesday, but held above its 50-day mark. Steel Dynamics stock has 88.72 consolidated buy points, according to MarketSmith. But it is close to the early entry of the trendline.

Nucor (NUE) and American Airlines (AAL) will be due on Thursday morning. NUE stock edged higher late in earnings day on STLD, having hit resistance at the 50-day and 200-day lines in Wednesday’s trading. AAL stock rose 2.1% on Wednesday, extending its winning streak to seven sessions after strong guidance from United Airlines (UAL) late Tuesday and Delta Airlines (DAL) last week.

Dow Jones Futures Today

Dow Jones futures were up 0.1% from fair value, helped by IBM stock. S&P 500 futures rose 0.1%. Nasdaq 100 futures fell 0.1%. Tesla stock is a key component of the S&P 500 and Nasdaq.

Dow futures contracts are becoming more volatile overnight, much like regular session trading.

Remember that action overnight in Dow futures contract and elsewhere it doesn’t necessarily translate into actual trading the next week stock market meeting.


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Rally stock market

The short-lived stock market rally added to recent gains, but then fell lower amid soaring Treasury yields. The major indexes pared their losses at the end of the session. A deep beige book report, which offered some positive Fed signals on the labor market and inflation, may have helped.

The Dow Jones Industrial Average fell 0.3% on Wednesday stock market trading. The S&P 500 index rose 0.7%. The Nasdaq Composite Index fell 0.85%. The small-cap Russell 2000 fell 1.7%.

The yield on the 10-year Treasury note rose 13 basis points to 4.13%, a 14-year high. Inflation in the UK returned to a 40-year high that helped push yields higher. The 10-year yield is on track for its 12th consecutive weekly gain.

US crude oil prices rose 3.3% to $85.55 a barrel, even as the Biden administration decided to release more oil from the Strategic Oil Reserve. Natural gas prices have continued to plummet recently, down 3.9%.


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ETF

Among the Best ETFsThe Innovator IBD 50 ETF (FFTY) rose 0.7%, while the Innovator IBD Breakthrough Opportunity ETF (BOUT) decreased by 2.1%. iShares Expanded Software-Technology Sector ETF (IGV) decreased by 1.15%. VanEck Vectors Semiconductor ETF (SMH) rose 0.8%, helped by ASML and LRCX shares.

Reflecting a more speculative narrative on stocks, the ARK Innovation ETF (ARKK) fell 4.2% and the ARK Genomics ETF (ARKG) fell 5.5%, to a 4-month low. Tesla stock is the top holding on Ark Invest ETFs.

SPDR S&P Metals & Mining ETF (XME) moved back 2.4%. US Global Jets ETF (JETS) closed unchanged, although UAL, AAL and DAL all rose. SPDR S&P Homebuilders ETF (XHB) is sold at a discount of 4.8%. The Energy Select SPDR ETF (XLE) increased by 3%. SPDR Fund for the Healthcare Sector (XLV) decreased by 1.4%.


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Tesla earnings

Tesla earnings spike 69% to $1.05 a share, with revenue up 56% to $21.45 billion. Analysts had expected Tesla to earn $1 a share on revenue of $23.3 billion, both up 62%.

Musk, on Tesla’s earnings call, said “it’s likely we’ll do some form of acquisition.” Some institutional owners have called for it. But he added that a buyback of TSLA stock won’t happen this year.

However, when asked about backlogs, Musk said that China and Europe are experiencing some weaknesses.

Q3 deliveries, which were reported earlier this month, easily set a record at 343,830 but missed views around 360,000. That also reduces output by just over 22,000.

Tesla argues that high logistics costs prompted it to ease the end-of-quarter rush and signaled it will stock up on more inventory for that reason in Q4. But Tesla doesn’t seem to be making deliveries in the early part of the fourth quarter.

Factory output in Shanghai will skyrocket in Q4 compared to Q3 thanks to recent upgrades, intensifying demand concerns.

All of that is fueling speculation that Tesla might cut prices, at least in China, to try to boost demand. Tesla has raised prices several times over the past year.

In the US, the new EV tax credits will help Tesla in 2023, though it’s unclear which vehicles will qualify. Upcoming tax credits could prompt potential buyers to hold off on making purchases until next year.

Tesla left its long-term delivery growth forecast unchanged at 50%. During the call, Chief Financial Officer Zach Kirkhorn said delivery growth in 2022 will drop slightly below 50%.

Auto industry gross margin came in at 27.9%, even in the third quarter, but down from 30.5% a year earlier. Excluding regulatory credits, the margin for autos is 26.8%, which is slightly below views.

Tesla Semi deliveries will begin on December 1, as Musk previously tweeted. But it’s not clear how many will be produced now or in 2023.

Tesla noted that production of 4680 battery cells tripled in Q3 compared to Q2. But the actual number of 4680 cells is still low. Larger batteries are yet to be mass-produced, making the cost savings confusing.


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Tesla shares

Tesla shares fell 4% in overnight trading. TSLA stock fell after Musk’s repurchase comment, but rose as he acknowledged demand problems. Shares rose 0.8% to 222.04 in Wednesday’s normal trading session. TSLA stock is up 8.3% so far this week, but that’s after falling to a 15-month low last week. Tesla stock needs to get back on the 50- and 200-day downlines, as well as break through the August 16 short-term high of 314.64, before it looks interesting. Shares of the EV giant hit a record 414.46 in November 2021.

An important issue is whether Musk needs to sell more TSLA shares to financially support the company Twitter (TWTR) agreement. At least one analysis suggests that Musk needs to dump $8 billion worth of Tesla stock. TWTR stock rose 0.1% to 51.83 on Wednesday, close to a takeover price of $54.20.

Market aggregation analysis

The stock market’s recovery attempt managed to make further progress on Wednesday. But strong 10-year Treasury yields weighed on major indexes, overshadowing overall high earnings.

Netflix and a number of other large-cap names have rattled the major indexes. But the bears outnumbered the near 3-for-1 winners on the NYSE and Nasdaq. The small-cap Russell 2000 and the S&P MidCap 400 fell sharply, while the composite Nasdaq fared much worse than the Nasdaq 100.

The Dow Jones Industrial Average remains above the 21-day line, but the S&P 500 has fallen back below a key near-term level. Russell and S&P MidCap too. Nasdaq briefly topped that level on Tuesday and lost again on Wednesday.

Indexes are still looking for a track date to confirm a new uptrend. The market’s recovery attempt will remain in place unless the major indexes cut their October 13 lows.

It is possible that the market has bottomed or is close to bottoming but the major indices can move sideways for a long time.


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What to do now

It remains a bear market, despite the ongoing recovery effort. The cracking action in major indices and leading stocks during frequent and prolonged trading makes it difficult to play stocks, even for very short periods of time.

If you take any position, split it and quickly take profit and loss. There is nothing wrong with keeping all or part of the cash.

Work on those watchlists. A lot of stocks that are not far away have flashed buy signals.

If they do trigger entries, that doesn’t mean you have to do anything. That could mean you let some stocks pass and move on to the big winners. But that also prevents you from buying a stock that reverses quickly and may sell off.

Read Big picture every day to stay in sync with market trends and top stocks and sectors.

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

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