Stocks fell broadly on Tuesday as concerns about financial stability in Europe retook center stage following Britain's historic June 23 decision to leave the European Union. Volume was mixed.
Perhaps largely in reaction to a sharp pullback in most European bourses, the Nasdaq composite lost 0.8%, snapping a four-day rebound. Volume rose, but NYSE turnover likely cooled, according to preliminary figures, as the S&P 500 shaved off 0.7%, and the Dow Jones industrial average dropped 0.6%. A significant decline in higher volume points to distribution, or heavy professional selling.
Small caps sold off harder, as the Russell 2000 slid 1.5%.
Tuesday's session featured a defensive streak, as water utility, non-alcoholic beverage and tobacco stocks led the upside, each with group gains of 0.5% or more. The Dow utility average gained nearly 0.9%.
Tesla Motors (TSLA) took a break following a five-day rally, falling more than 1% to 213.98. Volume was flat. The big stock market winner in 2013 continues to spin its wheels as rallies in May and June have failed to hoist the stock back above either the 50- or 200-day moving averages. Regardless of its position vs. these key technical indicators, the stock certainly remains in correction at 25% below a 52-week peak of 286.65.
Over the weekend, Tesla reported Q2 deliveries of 14,370 electric vehicles, sharply missing its own forecast of 17,000. Tesla cited what it called an "extreme production ramp." The company aims to speed up its production to 2,200 cars a week in the just-started third quarter, and up to 2,400 a week in Q4.
Those who bought Tesla during the early stage of its run-up in April 2013, when the stock broke out at 40.10, have a magnificent profit cushion and can afford to be patient with the stock. However, if the company fails to deliver a strong roadmap back to profitability, the stock could see further declines. Wall Street appears quite optimistic, with the consensus forecasting profit of 73 cents a share this year, up from a net loss of $2.30 a share in 2015. In 2017, Wall Street sees EPS rocketing 356% to $3.33 a share.
Yet for now, due to six quarters in a row of net losses, Tesla has seen its EPS Rating sink to a lowly 3 out of a maximum 99, as seen in IBD Stock Checkup.
Meanwhile, shares of a number of other car makers have slumped more than Tesla.
Ferrari (RACE) skidded 3.5% lower to 40.02, more than 33% below its October 2015 peak of 60.97. Remember that when a stock falls 33%, it must mathematically rally 50% to return to the prior peak. Toyota Motor (TM), down less than 0.5% to 99.18, has been a slacker too, sitting 27% below its 52-week peak. The recent strength in the Japanese yen, against which the U.S. dollar dipped to as low as 99 yen two weeks ago, is likely to hit the automotive giant's exports.
On Wednesday, keep an eye out for the market's reaction to the June survey of service-oriented firms by ISM; the Econoday forecast of 53.3 suggests continued expansion in the service sector, up from 52.9 in May. New York Federal Reserve Bank President William Dudley is slated to speak at 8 a.m. ET.
Among IBD 50 names in the stock market today, Denver-based CoreSite Realty (COR) continued to show remarkable mojo, rising more than 2% to 89.61 and striking new all-time highs. No. 1 in the IBD 50, the data center operator is a REIT, so most of its earnings are passed through to shareholders as dividends. The annual yield is 2.4%.
CoreSite's Finance-Property REIT industry subgroup is up nearly 13% YTD.
As seen in Friday's Big Picture column and Market Pulse table, the market is currently in a confirmed uptrend following Thursday's rare Day 3 follow-through. This means an investor has a higher probability of making money when buying breakouts of high-quality growth stocks at proper buy points. However, the long-term uptrend since the March 2009 major market bottom is still long in the tooth, so investors should keep their profit targets realistic.
