Nasdaq Cuts Big Losses Dow Up Floor & Decor Surges; What To Do With Tesla Now

The growing trade spat between the U.S. and China slammed the major indexes early on Wednesday, but the Nasdaq composite bounced back into positive ground and lifted its peer indexes higher. The leading index turned an early loss of nearly 1.9% to a gain of 0.8% in afternoon trading. Tesla (TSLA) led some automakers into positive ground.

Tesla stock accelerated its rebound and throttled more than 5% higher to 283.24 in heavy volume. While at least three of the five FAANG stocks also reversed higher, consumer and construction-related shares led the upside. So did defensive sectors, including drugstore, meat, generic drugs, dairy and confectionery firms.

At 2:45 p.m. ET, the S&P 500 erased a 1.6% loss and reversed to a gain of 0.7%. For the third day in a row, the large-cap benchmark undercut the long-term 200-day moving average. The Dow Jones industrial average edged up 0.5%, as at least seven of its 30 components were up 1 point or more. They included UnitedHealth Group (UNH), Home Depot (HD) and Apple (AAPL).

In IBD Leaderboard, software, e-commerce and apparel firms continue to do relatively better. Retail chain Lululemon (LULU), which joined the Leaders list on Feb. 7, fell more than 1% to 87.52 in dull turnover. But the yogawear apparel leader remains more than 4% above a buy point near 84.

The stock has advanced more than 38% since it cleared a bottoming base pattern at 64.91 in November.

That bottoming base also served as a first-stage pattern. First- and second-stage bases tend to carry higher probabilities of success following a breakout from those bases.

Just two of the Dow industrials' 30 components, industrial heavyweights Boeing (BA) and Caterpillar (CAT), sank 1 point or more as investors fretted over China's expansion of retaliatory tariffs to cover more agricultural and manufactured goods.

Caterpillar, off 1% to 143.64, is still holding above the 200-day moving average but is now around 17% below an all-time high of 173.24. Watch to see if the construction and mining gear titan can bottom out and begin to form the right side of a potential new base.

A properly formed base sets up a market-leading stock in a position to possibly break out to new highs and stage a solid run. But today, IBD's current outlook for U.S. equities remains "Market in correction," so breakouts are understandably few in number.

Floor & Decor (FND) is one of the rare big movers today, rising more than 5% to 55.06 in heavy volume.

The flooring products retailer, which imitates Home Depot's large warehouse-style model, is now extended more than 5% past a 51.58 buy point in an eight-week cup-style base. It's best to buy a stock no more than 5% past the proper buy point; buying too high in price can subject an investor to a quick loss if the stock makes a temporary pullback to or even mildly below the breakout entry.

Floor & Decor, now a mid-cap stock with a market value of $5.3 billion, went public in April 2017 at 21 a share. It has a float of 84 million shares and currently ranks No. 22 within the IBD 50. The company has grown earnings per share 9%, 75%, 47%, 31% and 58% vs. year-ago levels in the past five quarters. Sales jumped 25%, 31%, 29%, 27% and 40% over the same time frame.

The Future Of Tesla Fortunes

Going back to Tesla, the San Francisco-based firm still trades well below its 52-week peak of 389.61. Plus, the electric vehicle pioneer trades sharply below its 50- and 200-day moving averages. So the stock is nowhere close to a new IBD-style buy point.

However, those who bought at the initial April 2013 breakout near 40 still hold a fantastic long-term gain.

At this point, it makes sense to wait and watch for the possibility of heavy institutional buying to return. Trading near 280, Tesla is still an institutional favorite. The stock reached a total 1,000 mutual fund and hedge fund holders for the first time during the second quarter of 2016.

That sponsorship has grown a bit more to 1,027 funds as of the first quarter of this year. In Q3 of 2017, that number reached 1,095 funds owning a total 54.4 million shares. Earlier this week, Tesla reported confidence in its goal to reach a significantly higher production rate of its Model 3 sedan within the next three months and said it has no plans to raise more capital via debt or equity offerings this year.

The company said it built 2,020 Model 3 sedans in the final seven days of March and expects to see that run rate climb rapidly through the second quarter of this year.

Tesla is racing to meet the mountain of 500,000 preorders made for the affordable all-electric four-door vehicle. The base price of the Model 3 is $35,000, but many new buyers are likely to add options.

Elsewhere, homebuilding-related stocks advanced sharply following a blistering quarterly report from giant Lennar (LEN). The stock rose more than 8% to 61.97 and leapt back above the 50-day moving average for the first time in more than eight weeks.

The Miami-based builder posted a sharp increase in earnings for the February-ended fiscal first quarter on a 28% jump in sales to $2.98 billion.

LGI Homes (LGIH), a member of the IBD 50, ramped up more than 6% to 70.15 in below average trade. The stock continues to work on the right side of a cup-style pattern. The small cap rose 161% in 2017.

Analysts see Q1 earnings rising 37% to 71 cents a share. LGI, which focuses on entry-level homes, grew its profits by 39% to $4.73 a share in 2017.

(Please follow Saito-Chung on Twitter at @IBD_DChung for additional commentary on growth stocks, new breakouts, sell signals, and financial markets.)

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