Dow Jones futures fell modestly on Sunday night, along with S&P 500 futures and Nasdaq futures. Bitcoin also fell. Treasury yields moved higher.
The stock market rally had a big week, with the Nasdaq posting its best weekly gain since March and the S&P 500 posting its biggest gain since June. Major indexes rose on Thursday on a Fed-friendly inflation report. On Friday, the shift away from defensive names accelerated, with many medicals and other defensive or defensive-enhancement plays dropping sharply.
As opportunities to buy into major stocks are limited, investors should look to add exposure gradually.
Arista Network (a web), Pure storage (PSTG), Mobile (MBLY), Shift4Payments (four) and Flex ( FLEX ) are tech companies with strong growth but reasonable valuations. Flex and recent IPO MBLY stock are in traditional buy zones. Four stocks flashed aggressive entries while Arista Networks and Pure Storage are setting up.
Arista Networks and MBLY stocks are on the IBD Leaderboard Watchlist. PSTG stocks and flex are in the IBD 50. ANET stock is in the IBD Big Cap 20.
A video embedded in this article discusses, and analyzes, a crucial week for the market rally. Cigna (CI), Flex and MBLY stocks.
Megacap stocks rallied last week, but at or near bear-market lows. apple (AAPL) and Microsoft (MSFT) reclaimed its 50-day moving average.
One weak point is Tesla stock, which hit a two-year low last week. Tesla ( TSLA ) is under pressure from CEO Elon Musk’s wild start to ownership of Twitter. Meanwhile, China’s demand concerns continue after the Oct. 24 price cut and the recent withdrawal of insurance subsidies.
Graphics and data center chip giant Nvidia ( NVDA ) headlines a still-active earnings season. Strong Nvidia earnings and guidance, including results from the semiconductor device maker Applicable materials (AMAT), the chip may continue to rebound, a positive sign for the market rally. NVDA stock has risen mightily over the past four weeks, but is still below its 200-day line.
The price of Bitcoin returned to $16,000 on Sunday night. Bitcoin plunged on the week, hitting a two-year low of $15,554.48 on Wednesday, with many other cryptocurrencies suffering big losses. Cryptocurrency exchange FTX, seen as an industry white knight just a few months ago, suddenly collapsed, with a bankruptcy filing before the stock market’s opening bell Friday. Continued disclosures about FTX and related firm Alameda suggest significant financial irregularities.
The FTX failure, following several crypto-industry collapses earlier this year, raises concerns about trust. Crypto.com faced massive withdrawals over the weekend after admitting to botching a large transaction in late October.
Democrats retain control of the Senate, winning at least 50 seats. That could increase to 51 if they keep their seats in Georgia’s upcoming run-off election. Republicans are still favored to take the House, but with a wafer-thin majority that is by no means certain.
Dow Jones Futures Today
Dow Jones futures fell 0.2% versus fair value. S&P 500 futures sank 0.25% and Nasdaq 100 futures sank 0.45%.
Federal Reserve Governor Christopher Waller said Sunday that markets overestimated the October inflation report.
“It was just a data point,” said Waller, one of the Fed’s more hawkish members. “The market seems to have moved on from this,” that “we have a way to go.”
Crude oil futures rose. Natural gas prices rose more than 2%.
The 10-year Treasury yield rose 8 basis points to 3.89%.
Remember that overnight action in Dow futures and elsewhere does not translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live.
Stock market rally
The stock market’s rally was unhealthy as of midweek, but rebounded on Thursday, thanks to a cooler-than-expected inflation report. China eased Covid restrictions on Friday, giving stocks and commodities another boost.
The Dow Jones Industrial Average rose 4.15% in last week’s stock market trading. The S&P 500 index added 5.9%. The Nasdaq Composite rose 8.1%. The small-cap Russell 2000 popped 4.6%.
Apple stock, which set its worst close in nearly four months on Wednesday, closed with an 8.2% weekly gain. AAPL has moved above its 50-day line but is below its 200-day, where it hit resistance in late October. Microsoft stock rose 11.6%, above its 50-day line, after hitting a bear-market low on Nov. 3.
Tesla stock fell 5.5% to 195.97, though it bounced from Wednesday’s two-year low of 177.12. Expanded China stimulus, after recent price cuts there, add to demand concerns. But it’s the chaotic start to Musk’s Twitter reign that could be TSLA stock’s biggest drag. These include Musk’s recent Tesla stock sale and more short-term concerns that the “Twitter circus” is damaging the Tesla brand.
Nvidia rose 15.3% last week to 163.27, its fourth straight weekly advance and one of three double-digit gains.
The 10-year Treasury yield fell 33 basis points to 3.81%. Markets strongly expect a 50-basis-point Fed rate hike in December and are leaning toward a quarter-point move in February.
The US dollar fell, suffering its worst weekly loss in years, reflecting tumbling output.
U.S. crude futures fell 3.9% to $88.96 a barrel despite Friday’s bounce.
Among the top ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) jumped 12.35% for the week, with MSFT stock as a key component. VanEck Vectors Semiconductor ETF (SMH) rose 15.4%, vaulting above the 50-day line and near the 200-day. NVDA stock is a major holding.
The SPDR S&P Metals & Mining ETF ( XME ) popped 3.9% last week. The Global X US Infrastructure Development ETF ( PAVE ) rose 5.4%. The US Global Jets ETF (JETS) rose 5.6%, its sixth straight weekly gain. The SPDR S&P Homebuilders ETF ( XHB ) gained 12.1%. The Energy Select SPDR ETF ( XLE ) rose 1.95%, right to a high. And the Financial Select SPDR ETF ( XLF ) rose 5.8%. The Health Care Select Sector SPDR Fund ( XLV ) rose 1.75% despite Friday’s slide.
Reflecting the more-speculative story stocks, the ARK Innovation ETF ( ARKK ) reversed from a five-year low to run up 14.6% last week and the ARK Genomics ETF ( ARKG ) jumped 11.4%. TSLA stock remains a major holding in Ark Invest’s ETFs.
Five of the best Chinese stocks to watch right now
Growth stocks near buy points
Arista Networks’ revenue and sales growth increased for four consecutive quarters, at 69% and 57%, respectively, in the third quarter. ANET stock fell 1.9% to 128.55 last week, but on heavy volume after two big weekly gains. Arista stock’s high handle entry is in a consolidation going back to 133.80 on Aug. 18 — or a long consolidation going back to the end of 2021. ANET stock price earnings ratio is 32.
PSTG stock rose 1.45% last week to 30.78. Investors can use the 31.62 buy point or initial entry from the consolidation going back to August 18 or the cup-with-handle base starting in late March. Net storage income grew 129% last quarter on a 30% revenue gain. PSTG stock has a PE ratio of 27.
MBLY stock jumped 15.7% in the past week to 29.95, just clearing a 29.86 IPO base buy point. Mobileye, which offers driver-assistance systems, went public in late October at $21 a share, at the top of the official range but well below the owner’s valuation. Intel (INTC) was expected. Mobileye’s earnings grew 36% last quarter, with 41% revenue growth. MBLY stock has a PE of 48.
Four stocks jumped 17.8% to 47.30, but after a wild week. Shift4 payments reversed sharply on Monday after earnings, but then pulled back for the rest of the week. On Friday, Shift4 stock reclaimed the 200-day line and broke the trendline. The four stocks have a bottoming-basis buy point of 51.52, according to MarketSmith analysis. Shift4 revenue grew 69% and revenue 45%, both up from the previous quarter. Four stocks have a PE of 45.
FLEX stock rose 5% in the past week to 20.18, closing in range of a 19.73 buy point. Shares are also making a short base but long consolidation going back to early 2021. FLEX earnings grew by 31% in fiscal Q2 with revenue up 25%, both fastest for the third consecutive quarter. Flex is part of the highly rated electronic-contract manufacturing group.
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Market Rally Analysis
The week was significant due to the surge in the stock market. Already under pressure, the uptrend struggled on Wednesday with some notable losses that pushed the S&P 500 below its 50-day line.
But Thursday’s October CPI inflation report was a game changer, signaling a slower Fed rate hike and perhaps a lower peak rate. Major indices exploded higher as Treasury yields and the US dollar sank. The Dow Jones bounced back above its 200-day line, while the S&P 500 and later the Nasdaq ran past their 50-day line and October highs. The Russell 2000 jumped above its 50-day and 200-day lines.
All that action pushed the market rally back into a “confirmed uptrend.”
Meanwhile, workable stocks have been hard to find. Many of the biggest winners have been beating megacaps like Apple stock and Microsoft, as well as cloud software plays. On the flip side, defensive and defensive growth names that have been leading the way suddenly came under pressure. This includes many medical in the pharma, health insurer and drug distribution spaces. Defense contractors, auto parts retailers, restaurants, concessionaires and food manufacturers also suffered losses.
Even outside of that space the stock had some nasty downside upsides, incl CF industry (CF) and Enphase energy (ENPH).
Building products, networking stocks and many energy plays are doing well. Some traditional automakers are showing strength, not Tesla. Many steel stocks are doing well, while miners are coming up.
Chip names are also rebounding, but for the most part, Nvidia stock has a long way to go. Solar and medical products have many interesting names.
Time the market with IBD’s ETF Market Strategy
what to do now
Positive inflation news is reviving the stock market rally, providing a tailwind. There appears to be a rotation in defensive stocks and growth, but actionable stocks are limited.
Investors should look to add exposure, but there is no need to rush. With few stocks flashing buy signals so far, there will be plenty of opportunities ahead if the market rally has legs.
One option is to buy broad market or sector ETFs until more promising individual names pop up. Even so, keep the exposure modest, as the market pulls you in over time.
As you add exposure, avoid focusing too much on a particular area.
But make those watchlists. Interesting stocks are setting up while growth names are coming back. You want to be ready to buy the best names when they come out.
Read the big picture every day to stay in sync with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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