Dow Jones futures fell overnight, along with S&P 500 and Nasdaq futures, while Treasury yields rose. Nvidia (NVDA) and AMD stock fell overnight, dragging semiconductors down after it said the US government imposed export restrictions on some chip sales to China.
The stock market rally made a brief, weak attempt at a rebound on Wednesday, with major indices hitting resistance at the 50-day moving average before reversing lower.
On Thursday morning, Chinese EV startups such as Nio will release August sales.
Nvidia Stock Falls on the Edges of China
Nvidia stock fell nearly 7% in overnight trading. The chip giant said in a filing with the SEC that the U.S. government had imposed new licensing requirements that prohibit certain sales of advanced data center chips to China and Russia. Nvidia said the US cites “military end use” concerns. Nvidia, which does not currently sell products in Russia, said the restrictions could affect $400 million in sales in China.
The US government is increasingly imposing restraints on high-end chip technology on China.
Rival Nvidia Advanced micro-systems (AMD) reported a similar US advisory regarding the sale of various GPUs to China with AI uses. AMD stock fell 4% late in the session. Semiconductor manufacturing in Taiwan (TSM), which makes Nvidia chips, was down 2%.
The SMH ETF, of which the three chipmakers are a major part, slid 2% in late trading. Several other chip stocks fell slightly on news from Nvidia and AMD.
Pure storage (PSTG) made headlines overnight. PSTG stock jumped on better-than-expected earnings as well as revenue forecasts. Shares fell 1.8% to 28.97 on Wednesday, closing just above the 200-day line. PSTG stock can test a buy point of 31.62 from a cup with handle base.
Sales of electric vehicles in China
Early Thursday, Chinese EV startups Nio (NIO), Li-Auto (LI) and XPeng Engines (XPEV) will report August delivery data. EV and battery giant BYD (BYDDF) will likely report Friday or Saturday. Nio shares, as well as shares of giant Li Auto, Xpeng, BYD and EV You’re here (TSLA) are struggling right now.
The new U.S. ban on some Nvidia and AMD chip sales could impact Chinese EV makers, especially those with self-driving or driver-assist efforts.
With the market rally so weak, investors should be wary of new purchases and act to reduce their exposure. But they should research potential leaders for their watchlists.
Dow Jones Futures Today
Dow Jones futures fell 0.2% from fair value. S&P 500 futures fell 0.5% and Nasdaq 100 futures fell 0.8%, with AMD and Nvidia stocks weighing on S&P 500 and Nasdaq futures.
The 10-year Treasury yield jumped 7 basis points to 3.2%.
Stock market rally
The stock market rally attempted to rebound on Wednesday morning, but major indexes quickly retreated, closing at session lows.
The Dow Jones Industrial Average lost 0.9% on Wednesday stock market trading. The S&P 500 index fell 0.8%. The Nasdaq composite and the small-cap Russell 2000 fell 0.6%.
U.S. crude oil futures fell 2.3% to $89.55 a barrel.
The 10-year Treasury yield rose 2 basis points to 3.13%.
From best ETFsthe Innovator IBD 50 ETF (FFTY) fell 0.4%. The iShares Expanded Tech-Software Sector ETF (VIG) and VanEck Vectors Semiconductor ETF (SMH) fell 0.7%. TSM, Nvidia and AMD shares are SMH’s top holdings.
Reflecting more speculative history stocks, ARK Innovation ETF (ARKK) fell 0.1% while ETF ARK Genomics (ARKG) climbed 1.3%. Tesla stock is a major holding in Ark Invest’s ETFs. Cathie Wood’s Ark also owns Nio and BYD stock.
Sales of electric vehicles in China
Nio, Li Auto and XPeng are announcing August deliveries ahead of Thursday’s opening. After all three Chinese EV startups slightly surpassed 10,000 shipments in July, Nio and XPeng may slightly miss that mark in August. Li Auto may not even reach 5,000.
Nio shares rose 0.6% to 19.95 on Wednesday, trading below the 50-day line. The stock is operating on a base buy point of 24.53 which would imply breaking above the 200-day line.
LI stock fell 0.1% to 28.77 on Wednesday, hitting resistance at the 200-day line again.
XPeng shares 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. Sales of electric vehicles and plug-in hybrids in July jumped 222% from a year earlier to 162,350. There are indications that BYD will set another record in August.
On Monday, BYD reported first-half profits tripled from a year earlier, with sales up 60%. This sent shares slightly higher.
But BYD stock plunged 7.8% on Tuesday, followed by a loss of 4.35% to 30.75 on Wednesday. Shares of the electric vehicle and battery giant fell below the 200-day mark after hitting a record high of 43.61 on June 28.
At Warren Buffett’s Berkshire Hathaway (BRKB) revealed on Tuesday that it sold 1.33 million H-shares on August 24 in Hong Kong, less than 1% of its large holding in BYD shares. Berkshire still owns just under 8% of BYD, but investors fear it will continue to sell shares.
Tesla does not detail sales in China, but industry data suggests local sales topped 30,000 in August. This excludes exports to Europe and elsewhere. More comprehensive industry data for Tesla will be available later in September.
Tesla stock fell 0.75% to 275.61 on Wednesday. Stocks hold above the 50-day mark, but fall from the 200-day and 21-day moving averages.
Market rally analysis
The stock market rally doesn’t show much of a fight. Major indices rose Wednesday morning, but quickly hit a wall at the 50-day moving average. They pulled back, eventually closing at the session low.
The Russell 2000 and S&P 400 MidCap fell just above their 50-day line, although they ended slightly below their 10-week averages.
Getting back above the 50-day line is important for the Nasdaq, but it certainly wouldn’t be a clear signal for bulls. On the other hand, it wouldn’t take much of a downside to push the shaky market rally into a correction.
The U.S. ban on some Nvidia and AMD chip sales looks likely to hit the semiconductor sector on Thursday, with technology futures pointing to further weakness.
What to do now
The market rally remains under pressure for now, but the weakness is evident. Investors should look to take profits and cut losses instead of increasing their exposure.
Work on your watchlists. Keep looking for possible setups, but be sure to keep track of quality stocks with high relative strength, even if the charts aren’t yet ripe. But stocks can outperform in a weak market until they suddenly falter. And relative winners can always be absolute losers.
Lily The big picture every day to stay in tune with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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