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Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. The stock rally came under pressure last week, with the Nasdaq and speculative growth companies the hardest hit.
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You’re hererival of (TSLA) Nio (NIO) and Focus on video communications (ZM) publishes its results on Monday, but the two big winners of 2020 are far from highs, as well as Tesla stock itself.
Now is the time to be defensive and look for stocks that hold up well. Taiwan Semiconductor (TSM), General Motors (GM), HR (RH), Target (TGT) and InMode (INMD) are worth watching to see if they can form a proper foundation as the market organizes.
The market rally, under pressure, is at a turning point. Returning to key support levels would mean a boost in strength. But a break of the Nasdaq below last week’s low would send a bearish signal.
Tesla and Taiwan Semi are listed in the IBD ranking. Tesla and TSM shares are on the IBD 50. RH was the IBD stock for Friday.
Why this IBD tool makes it easier to find the best stocks
Dow Jones Futures today
Dow Jones futures will open at 6 p.m. ET on Sunday, as will S&P 500 and Nasdaq 100 futures.
Keep in mind that overnight action on Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular trading session.
Join the IBD experts as they analyze the exploitable stocks during the stock market rally on IBD Live.
Coronavirus news
Coronavirus cases around the world have reached 113.98 million. Covid-19 deaths have exceeded 2.52 million.
Coronavirus cases in the United States have reached 29.13 million, with deaths exceeding 523,000.
On Friday evening, an advisory committee recommended that the FDA urgently approve the Johnson & johnson (JNJ) coronavirus vaccine. The FDA is expected to approve the single-dose vaccine as soon as possible. This will provide another blow to the arm for vaccination efforts.
Vaccinations hit a record 2.2 million on Friday.
Stock market rally
The stock rally has seen plenty of wild intraday swings, with major indices ending with a noticeable drop, close to weekly lows.
The Dow Jones Industrial Average fell 1.8% in stock trading last week after hitting a record high on Wednesday. The S&P 500 index fell 2.5%. The Nasdaq composite fell 4.9%.
The 10-year Treasury yield rose 9% to 1.46% after briefly surpassing 1.6% on Thursday. While good news for many financials, the higher rates weighed on growth stocks.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 6.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 7.8%. The iShares Expanded Tech-Software Sector (IGV) ETF fell 6.8%, with Zoom Video stock being key. The VanEck Vectors Semiconductor ETF (SMH) fell 5.1%, with TSM leading the way.
Reflecting more speculative stocks, Ark Innovation ETF fell 14.8% and Ark Genomics ETF fell 13.8%. The Tesla share is the first to have ETFs from Ark Invest.
Nio, Zoom in on the income on tap
Chinese electric vehicle maker Nio and video conferencing leader Zoom Video report their results on Monday evening. Nio’s earnings and delivery forecasts will be closely watched as competition intensifies in the Chinese EV market. Zoom Video is expected to come with another quarter of huge growth, with investors keen to hear about the company’s prospects as we enter a post-pandemic world later this year.
Zoom stock fell 10.5% last week to 45.78, below its 10 week line. Stocks found support at their 200-day moving average on Friday. Investors who made the huge gains in 2020 and still hold ZM stocks might choose to stay strong, but otherwise there is no good reason to have a position at this time.
The Nio stock plunged 17% last week to 373.61, now 16% below its 10 week line. It’s a decisive break and a strong sell signal, especially with profits under pressure. Long-time holders sitting on a huge gain might choose to keep certain stocks in the earnings report.
As for Tesla stock, the EV leader slipped 13.5% to 675.50. He is now 14% below his 10 week line. He gave up about half of the gains from his mighty November rally. As with Nio, investors in TSLA shares probably should have taken at least partial profits by then.
Actions to watch
TSM stock fell 7.8% to 125.94 last week, but found support at the 50-day and 10-week moving average, edging higher on Friday. In a strong market rally, investors might look for a rebound as a buying opportunity. But for now, investors should probably wait for TSM stock to finish a new base as the market recovers.
General Motors fell just 2.4% last week to 51.33, but also found 10-week line support, rebounding slightly higher on Friday. He could soon have a new base after hitting a record in early February.
The HR stock fell 2.9% to 490.37 last week, testing its lines at 50 days and 10 weeks. It has a flat base with a buy point of 542.11.
The target stock fell 2.9% last week to 183.40, below its 50-day and 10-week lines. But it’s still in a flat base with a buy point of 200.06. Target earnings are due Tuesday morning.
The InMode headline fell 0.2% to 68.96 and rose 2.7% on Friday. Shares have traded heavily in recent weeks after hitting record highs. INMD stock has found support at 21 days a few times in recent weeks. The relative strength line is just at record levels. The INMD stock needs to be a base, but the action has been very strong.
Analysis of stock market rallies
Major indexes retreated last week, especially the Nasdaq composite. The highly technological index attempted to regain its 50-day moving average on Friday, but failed to close above it amid strong selling at the close. In addition, the volume was much lighter on the upside than on the downside.
For much of the week, the equity market rally appeared to be a violent spin of the sector away from speculative growth to cyclical names in the real economy. The Dow Jones, which hit a record Wednesday, provided further evidence.
However, the Dow Jones and S&P 500 fell sharply from Thursday to Friday, closing just above their 50-day lines.
All major indices are below their 21-day exponential moving average. The 21-day line served as support for the Nasdaq during the April-September stock market rally and post-election rally. But in recent days it has served as resistance.
On the downside, Tuesday’s intraday low for the Nasdaq is significant. This low is essentially at the 13,000 level and the January 29 low. A close below this zone would likely mark the end of the current stock rally. But we are not there yet.
What you need to do now
Investors should be wary of making further purchases until the Nasdaq is back above its 21 day line. You should have significantly reduced your exposure over the past two weeks. If the Nasdaq closed and closed below Tuesday’s low, that would be a signal to go deeper into the cash.
Analyze your holdings. Are there any stocks that you should have partially or fully sold last week? What are your long-term bets on which you want to occupy a central position?
Even if you’re all in cash, it’s important to stay engaged. Work on your watchlists, focusing on high SR stocks like Taiwan Semiconductor and Target.
Check out the Relative Strength At New High list on the IBD Stock Screener. Also use the RS Line At New High and RS Line Blue Dot stock listings on MarketSmith.
Be sure to watch the plays related to commodities, financials and other cyclicals.
Review your transactions for the past few months. Look at your big winners and your losers. Look for stocks you owned and sold too early, missing out on the big winners. Identify the graphical patterns and the strengths and weaknesses of your trading movements.
Read The Big Picture daily to stay on top of market direction and major stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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