Dow Jones futures were slightly altered on Monday morning, along with S&P 500 futures and Nasdaq futures, with US stock markets closing for MLK Day. The stock market rise is tilting, and last week's short-term recovery quickly whizzed by.x
The stock market rally is still going on, but is battered and shaky. The major averages are testing key support areas, though Nasdaq has kept its 200-day line so far.
Nasdaq has lagged behind the S&P 500 index since February last year, when underperformance has risen over the past two months.
Apple (AAPL) stock and Apple iPhone chipmaker Qualcomm (QCOM) are two growth stocks that are holding up relatively well while Tesla (TSLA) Rival China Xpeng (XPEV) is right at an early entrance. In the meantime, DE stock is being created while SM Energy (SM) broke out Friday.
Goldman Sachs (GS), Charles Schwab (SCHW) and Signature Bank (SBNY) report before Tuesday's market opening. The GS stock fell below its 200-day moving average on Friday, although it is technically in a base. Schwab stock has been expanded. SBNY stock is on the edge of a buying zone.
Xpeng shares are on the IBD 50 list. Deere (DE) was Friday's IBD Stock Of The Day.
The video embedded in this article discussed the volatile market action as well as SM stocks, At Semiconductor (ON) and Deere.
Dow Jones Futures today
Dow Jones futures rose a fraction relative to fair value and fluctuated between small gains and losses since Sunday night. S&P 500 futures lost 0.1 pct. Nasdaq 100 futures fell 0.3 percent.
U.S. markets closed Monday on the occasion of the Martin Luther King Jr. holiday, though other exchanges around the world were open.
The Bank of China lowered its one-year lending rate by 10 basis points to 2.85%, the first reduction since April 2020.
The monetary push comes amid a series of Chinese economic data. China's economy grew 4% in the fourth quarter from a year earlier, better than the outlook of 3.3%, but down from Q3's 4.9% pace. GDP grew by 8.1% for the full year. Industrial production in December increased by 4.3% compared to a year earlier, slightly better than forecast. But retail sales grew by only 1.7%, less than half the estimates of 3.8%.
Meanwhile, China's ultra - low birth rate fell to 0.75% in 2021.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze powerful stocks in the stock market rally on IBD Live
News about coronavirus
Coronavirus cases worldwide reached 329.2 million. Covid-19 deaths topped 5.55 million.
Coronavirus cases in the United States have affected 66.99 million, with deaths above 873,000.
New infections appear to have peaked in the UK as well as New York and Massachusetts, following the pattern in South Africa. Cases may be close to peaking nationally, but not in large parts of the country. Hospital admissions are rising, but not nearly as much as in previous Covid waves.
Stock market rally
The stock market rally traded up and down near key support levels over the past week, eventually closing modestly to solid lows.
The Dow Jones Industrial Average fell 0.9% in last week's trading. The S&P 500 index and Nasdaq composition fell 0.3 percent. Small-cap Russell 2000 gave up 0.8 percent.
The 10-year government bond yield rose 1 basis point to 1.77%, returning on Friday after modestly pulling back three times in a row. It hit a 23-month high of 1.81% intraday Tuesday. Futures on US crude oil rose more than 6% for the week to $ 83.82 per share. barrel.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.3% last week, but after hitting a 52-week low intraday on Monday. Innovator IBD Breakout Opportunities ETF (BOUT) rose 1%. iShares Expanded Tech-Software Sector ETF (IGV) fell 1.6 percent. VanEck Vectors Semiconductor ETF (SMH) rose 3.4%, with the Qualcomm stock a notable holding.
SPDR S&P Metals & Mining ETF (XME) rose 2% last week. Global X US Infrastructure Development ETF (PAVE) fell 1.3%. US Global Jets ETF (JETS) rose 0.1 percent. SPDR S&P Homebuilders ETF (XHB) withdrew 1%. Energy Select SPDR ETF (XLE) jumped 5.2% after rising 10.5% the week before. The Financial Select SPDR ETF (XLF) withdrew by almost 1%, but many banks had strong weeks. Health Care Select Sector SPDR Fund (XLV) fell 0.2 per cent.
As a result of more speculative history stocks, the ARK Innovation ETF (ARKK) and the ARK Genomics ETF (ARKG) both fell by almost 5% to a 19-month low. Tesla shares remain No. 1 across ARK Invest's ETFs, but Cathie Wood has cut back on her TSLA share in recent months as she increases investment in hard-hit, highly valued growth.
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Apple stock rose 0.5% to 173.07 last week. On Monday, January 10, the AAPL stock rose from its 10-week line for the first time since its breakout in November. Investors could use a pull above Thursday's high of 176.62, a spot to buy Apple shares from the 10-week jump. It would also push the iPhone maker over its 10-day and 21-day lines.
Apple does not have a base in itself, but has consolidated strongly over the last many weeks, with the relative strength line kept just around record highs. Investors can treat this recent trade as a messy flat base with a buying point around 181-182.
QCOM shares rose 4.6% to 188.69 last week. Shares have generally found support on their 21-day line since mid-December, but January 10 returned from their 50-day line. The RS line for Qualcomm equities is at a new high, especially powerful performance for a growth stock.
The QCOM stock has consolidated in a messy way since mid-November, although trading looks tighter on a weekly basis. Officially, the Qualcomm stock has a three-week tight entry of 193.68, just above the top of the broader consolidation. Investors may be looking for a "pull line" that is slightly lower than that. Alternatively, another test of the 50-day / 10-week line, which might be equivalent to 21-days, could be another way to get into Qualcomm.
The consolidation over the past two months follows two major movements from the QCOM stock. Shares jumped on earnings and then rose two weeks later when CEO Cristiano Amon announced a bright future after Apple for his company.
The wireless chip giant is likely to see its iPhone business fade in the coming years as Apple designs more chips internally. But Qualcomm aims to expand its total addressable market from $ 100 billion today to about $ 700 billion over the next decade, by connecting Internet devices from augmented reality glasses to cars.
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Xpeng rose 10% to 49.69 last week, returning from its 200-day line and recapturing its 50-day line. Shares in China EV startup that have gone up Nio (NIO) and Li Auto (LI) in monthly deliveries, has an official buying point of 56.55 from a consolidation going back to December 1st. But the XPEV stock just crossed a trend line on Friday, offering an early entry not far from its 50-day line. Equities also have 51.50 as short-term resistance.
As for the Tesla stock, the EV giant rose 2.2% to 1,049.61 in a wild week, ending just below its 50-day line but slightly above its 10-week line. TSLA stock has a buy point just over 1,200.
The SM stock rose nearly 12% to 36.64 last week, releasing a buy point of 35.82 cup-with-handles on Friday, according to MarketSmith analysis. However, the volume was light. The RS line for SM stocks is close to highs, reflecting its strong performance over the S&P 500. But it's a bit of a laggard in the oil area. How long can oil prices and energy stocks continue to run higher?
Deere shares rose 0.2% to 379.56 last week. Shares fell slightly on Friday, giving a new handle that was less tickling. The handle’s buying point is 386.65 in a base that goes back to early September. But the DE share has consolidated since last May or even March. After earnings doubled in fiscal year 2021, analysts see solid growth for the agricultural equipment giant in 2022 and 2023.
Analysis of market rally
Stock market rally recovery from Monday, January 17, low hit resistance on Wednesday, with major indices falling Thursday and Friday morning. But the Nasdaq, which undercut its 200-day line again last Friday, led a partial recovery.
The Dow Jones tested its 50-day line last Friday, keeping the S&P 500 below this key level. Russell 2000 undermined Monday's low and threatens to break during a years-long consolidation.
The major indices are not far from their lowest on January 10th. Closing below these levels could mean the end of the market upswing, which is already under pressure. On the plus side, after a vicious sell-off in the previous week, the major indices ultimately did not give up much ground in the past week.
The stock market rise could still use a convincing victory. But like a team down 3-0 or 3-1 in a best of seven series, a "win" would not solve market problems. In addition to returning from or back above the key moving averages, the major indices are set to regain Wednesday's highs. For Nasdaq, the 50-day line and its peak on January 4 would be further testing.
The Nasdaq lineup has lagged the S&P 500 for 11 months. This is despite megacaps like Apple shares, Tesla, Microsoft (MSFT), Nvidia (NVDA) and Google parent Alphabet (GOOGL), which at least until very recently all had outperformed the benchmark index. It is a reflection of how weak the average growth stock has been. Highly valued growth has been hammered, especially in the last few months, as FFTY, IGV and especially ARKK and ARKG show.
With the Federal Reserve increasingly hawkish and government interest rates rising, growth stocks may continue to struggle.
Energy stocks remain strong along with most finances. But Friday JPMorgan Chase (JPM) divestiture is a reminder that the earnings season is back, adding a number of risks to individual stocks, sectors and the wider market.
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What should I do now
Investors should be defensive. The big indices are closer to collapsing than breaking out. Growth and technology stocks are not working right now, except for Apple and some chip names such as Qualcomm.
Do not rush to jump into the next growth leap. After several major fakes, investors should wait for real strength, not another dead-cat jump.
The energy and finance sectors continue to lead, along with fertilizers and some other cyclical names. But do not get too concentrated even here. A turnaround in these areas would not be surprising, either from underlying bond or commodity prices changing or the broader stock market pulling everything down.
It's time to build watch lists. Look for stocks that show strong relative strength and hold important support levels. A number of machinery, chemical and industrial warehouses are taking shape, including Deere. Continue to rework your lists. Some stocks, such as Home depot (HD), looked strong and stable two weeks ago, but is tumbling now. Meanwhile, some other names, such as Xpeng and Deere, are showing some strength.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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