Will the rally pay off for bonds?  Musk and Buffett move

Will the rally pay off for bonds? Musk and Buffett move

Dow Jones futures open Sunday night, along with S&P 500 and Nasdaq futures. Warren Buffett stock Occidental Petroleum, Elon Musk’s latest move against Twitter and top three software are in focus.


The stock market rally appears to be continuing its momentum this week, with the S&P 500 and Nasdaq composite back above their 50-day moving averages and many top stocks showing buy signals. However, the 10-year Treasury yield continues to move towards long-term highs, a potential headwind for the market recovery. The August Consumer Price Index is due out early Tuesday.

Warren Buffett loaded more western oil (OXY) shares, with Berkshire Hathaway (BRKB) disclosing a 26.8% stake in OXY shares on Friday evening. OXY stock rose Friday night after rallying in a recent breakout last week.

You’re here (TSLA) CEO Elon Musk has made a new case for getting out of a $44 billion Twitter takeover. This week Twitter (TWTR) shareholders will vote on Musk’s offer. TWTR stock fell slightly on Friday night, but after big gains during the holiday-shortened week. Tesla stock surged, returning above key levels and arguably offering an aggressive entry.

Meanwhile, Cadence Design Systems (CDNS), Palo Alto Networks (PANW) and Paylocity (PCTY) are three software stocks showing strength, setting up or flashing buy signals.

The PANW stock is on the IBD rating, while the PCTY stock is on the rating watch list. CDNS stock is on IBD Long-Term Leaders. TSLA stock is on the IBD 50. Cadence Design Systems and OXY stock is on the IBD Big Cap 20.

Dow Jones Futures Today

Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

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Stock market rally

The Dow Jones Industrial Average climbed 2.7% in stock trading last week. The S&P 500 index jumped 3.65%. The Nasdaq composite jumped 4.1%. The small-cap Russell 2000 rebounded 4%.

The Dow Jones closed just below its 50-day moving average, while the S&P 500, the Nasdaq composite and the Russell 2000 all broke that key level on Friday.

There is still room for maneuver before the major indices face the 200-day moving average. Major stocks could therefore make decent gains during this period.

However, it wouldn’t take much of a pullback to see all the major indices back below their 50-day lines or their lows from last week.

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Treasury yields

A big concern is with Treasury yields. The 10-year Treasury yield rose 13 basis points to 3.32% last week. The benchmark index has rallied for six straight weeks, heading back towards the 11-year high of 3.48% set on June 16.

The market rally has reignited despite the continued rise in Treasury yields, but there is no doubt that equities have struggled in 2022 as yields trend higher. Part of that reflects higher yields pushing up demand for the dollar, which eased Friday from long-term highs.

On Tuesday, the Labor Department will release its consumer price index for August. Analysts had expected consumer prices to fall 0.1% from the previous month after being flat in July, with falling gasoline prices a major factor. The headline CPI inflation rate is expected to decline again, to 8% from 8.5% in July. Core consumer prices are expected to rise 0.3% for a second month. Core inflation could rise to 6.1% from 5.9% in July, fueled by rapidly rising rents.

A subdued inflation report would likely not deter the Federal Reserve from raising interest rates by 75 basis points for a third straight meeting on Sept. 21. But it could bolster expectations of a slower pace of future rate hikes. On the other hand, high inflation could send Treasury yields and rate hike expectations skyrocketing.

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Elon Musk’s new reason to end the Twitter deal

Tesla CEO Elon Musk filed an additional reason Friday night to end the $44 billion Twitter takeover deal. He argues that a severance package to whistleblower Peiter “Mudge” Zatko was outside the normal course of business.

It’s unclear whether that claim will gain traction in Delaware Chancery court, with the five-day Musk-Twitter trial set to begin Oct. 17.

Twitter stock fell 1.3% on Friday night. But that’s after TWTR stock jumped 9.2% to 42.19 last week, though that’s still well below the $54.20 Musk agreed to pay.

On Tuesday, Twitter shareholders will vote on Elon Musk’s offer.

Tesla stock jumped 10.9% last week to 299.68, rebounding from its 50-day line and recovering its 200-day line. Shares of the electric vehicle giant are arguably showing an aggressive entry. Investors may decide to wait for TSLA stock to break above 300 or the August 16 short-term high at 314.64.

Warren Buffett buys more shares of Occidental Petroleum

Warren Buffett’s Berkshire Hathaway has raised its western oil (OXY) at 26.8% versus 20.2%. Berkshire disclosed this in a filing with the SEC Friday night.

OXY stock rose slightly on Friday night.

The Federal Energy Regulatory Commission has given Berkshire the right to buy up to 50% of Occidental Petroleum. This Aug. 19 news sent Occidental stock higher past a buy point of 66.26, to 77.13. But stocks made a comeback at the end of last week. OXY stock rose 1.55% to 65.61 on Friday, finding support at its 50-day line.

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Software stocks to watch

CDNS stock rose 3.9% last week to 174.68, reclaiming its 50-day moving average on Friday but still just below its 10-week line. Shares of the chip design software maker rose sharply from mid-June to mid-August, wiping out early entries above the 200-day line. But Cadence Design stock has fallen since hitting 194.97 on Aug. 16. A move above the 21-day line this week could provide a buying opportunity against the 50-day average.

Palo Alto stock climbed 4.7% to 564.77 last week, finding support at the 50-day line and recovering its 200-day line. PANW stock is working on a base buy point of 578.89 handle cups, according to MarketSmith analysis. But the cybersecurity firm broke a downtrend in the handle on Friday, making it now actionable.

Paylocity stock jumped 9.6% last week, rebounding just above its 10-week line and recovering its 21-day line. It’s potentially exploitable now. Investors might view the recent consolidation – following an earnings gap – as a handful in a deep 10-month base. In a week, this handful could become a suitable base for PCTY shares. Anyway, the official buy point is 276.98.

Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.

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


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