Dow Jones futures rose slightly on Monday night, as did S&P 500 and Nasdaq futures. The stock rally has had a tough session for growth names including but certainly not limited to You’re here (TSLA), Square (SQ) and Nvidia stock.
Chip breakouts struggled to cause software names to fail around their 50-day line.
While the major indices all remain near record highs, this market has been a “hard penny,” according to renowned investor Mark Minervini on IBD Live on Monday. Even with the stock rally trending upward, entering a power trend on Friday, the environment has been difficult for small gains to be made.
A rising 10-year Treasury yield, a weaker Bitcoin price and bad news for Nvidia and Tesla stocks weighed specifically on tech stocks on Monday. Coinbase (COIN) continued to consolidate following the high profile direct listing last week.
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United Airlines (UAL), Steel dynamics (STLD) and the giant of the Dow Jones IBM (IBM) reported profit after the close.
United Airlines reported a larger than expected loss and shortfall. The UAL stock fell 2.2% in overnight trading. Shares fell 1.6% to 54.99 on Monday, testing their 50-day line. Airlines and other travel documents have retreated in recent weeks after participating in a “reopening” rally.
Steel Dynamics profits exceeded expectations. STLD stock fell 1.35% in extended trade. Shares fell 0.6% on Monday to 51.19. Intraday, Steel Dynamics stock hit 52.72, just erasing a tight four-week pattern with a buy point of 52.69.
IBM’s profits exceeded views while revenues edged up, a rare gain year over year. Cloud revenue led the way. IBM stock rose 3.1% overnight, flirting with a possible breakout. Shares fell 0.35% to 131.12 on Monday. IBM’s stock has been consolidating for a few weeks. Investors might see this as a handful for a 14 month consolidation, with 137.17 as a buy point. But the line of relative strength has been trending down since late 2011, highlighting the long-term underperformance of IBM stock relative to the S&P 500 Index.
Netflix revenue due
A number of revenue reports are due on Tuesday, but the big event is Netflix (NFLX) after closing. Shares rose 1.45% to 554.44 on Monday. NFLX stock could have a small grip at Tuesday’s close with a buy point of 559.85. He already has a handful, barely, on a weekly chart.
Arguably, NFLX stock is already on a trendline going back to its January 20 high after the fourth quarter earnings report.
Netflix stock performed well on Monday, but its RS line is just above a 52-week low as stocks have moved sideways in the past nine months.
The Nvidia and Square stock are in the IBD rankings. The square stock is on the IBD 50.
Volatile Bitcoin price, Coinbase IPO consolidates
The price of Bitcoin traded below $ 55,000 on Monday night. The cryptocurrency rebounded from a Saturday night above $ 51,000 to hit $ 57,600 on Monday morning, but fell more than $ 61,000 on Friday night. Bitcoin hit a record high of $ 64,899 early Wednesday, hours before Coinbase’s direct listing.
Coinbase stock fell 2.6% to 333 on Monday. It was the third consecutive indoor day.
Coinbase stock had a benchmark price of 385 and quickly climbed to 429.54 in Wednesday’s debut. But the actions quickly reversed lower. As of late afternoon, COIN stock undercut 350 and has not rebounded.
Wait for the formation of an IPO base. There may be early entry for aggressive traders, but a lot of people who have bought COIN shares above 350 may want to exit.
Dow Jones Futures today
Dow Jones futures were up 0.15% versus fair value, with IBM stocks providing a slight boost. S&P 500 futures were up 0.2% and Nasdaq 100 futures were up 0.1%.
Keep in mind that an overnight action in 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.
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Coronavirus cases in the United States have reached 32.47 million, with deaths exceeding 581,000.
Monday stock market rally
The market rally had a bearish session on major indexes, but small caps and growth stocks had a tougher time.
The Dow Jones Industrial Average fell 0.4% in Monday’s stock trading. The S&P 500 index lost 0.5%. The Nasdaq composite sank 1%. The Russell 2000 small cap fell 1.2%.
The 10-year Treasury yield rose 3 basis points to 1.6%. The 10-year yield fell last week, although it rebounded somewhat on Friday.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 2.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) slipped 1.8%. The iShares Expanded Tech-Software Sector (IGV) ETF fell 1.3%, although many growth names suffered larger losses. The VanEck Vectors Semiconductor ETF (SMH) sold 2.5%. The Nvidia stock is a major component of SMH, but there was widespread weakness among the chips.
The SPDR S&P Metals & Mining ETF (XME) fell 1.3% and the Global X US Infrastructure Development ETF (PAVE) lost 0.55%. US Global Jets ETF (JETS) fell 1.25%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 3.2% and ARK Genomics ETF (ARKG) fell 2.5%. The Tesla share is the number 1 ETF of ARK Investments. Square stock is one of ARK’s top five stocks. ARK Invest has bought a lot of COIN shares since its IPO.
Tesla stock fell 3.4% to 714.63, but closed in the upper half of its range after testing its 50 and 21-day moving averages. On Saturday, two men died in a Model S crash near Houston in which neither was in the driver’s seat, indicating the Tesla was operating on autopilot or self-driving.
After the close, Tesla CEO Elon Musk tweeted: “Data logs recovered so far show that the autopilot was not activated and this car did not purchase FSD.” Meanwhile, law enforcement said they would serve Tesla with search warrants to obtain all data from the crashed vehicle.
TSLA stock rose 1% overnight.
Bitcoin’s sharp drop from Friday also likely weighed on Tesla, which invested $ 1.5 billion in the cryptocurrency earlier this year.
On the upside, key support for successful Tesla stock testing would be a positive sign. It could have a grip after Tuesday on a daily chart with a buy point of 780.89. A handful that appears on a weekly chart would be even better, shaking weak holders ahead of Tesla’s earnings next week.
The square stock fell 4.2% to 245.33, closing slightly above its 50 days.
SQ stock has now fallen in three of the last four sessions, but that’s after rising for 10 straight days. As with Tesla, Square stock is likely going down in part due to the falling price of Bitcoin. After Tuesday, SQ stock will have a grip on a daily chart with a buy point of 278.23. On a weekly chart, the handle is already there. But a handful is no guarantee of an escape, or that the escape will be successful.
Nvidia stock fell 3.5% to 614.47, once again undercutting a buy point of 615 from a cup base. The UK government has said it is intervening in Nvidia’s plan to buy UK-based wireless chip designer Arm Holdings. At a minimum, this suggests a longer Nvidia-Arm approval process.
While NVDA’s stock has fallen in three of the past four days, volume has been much lighter on these retreats than in the past three days of rising.
Taiwan Semiconductor (TSM) fell 2.9%, moving away from its 50-day line, with the RS line hitting a low in 2021. Micron technology (MU) fell 2.5%, below its 50-day line after hitting a 20-year high last week. Lam Research (LRCX), which reports later this week, fell 3.4% to 621.73, falling almost to a buy point of 603.70.
Analysis of market rallies
The Dow Jones and S&P 500 were on the cusp of expanding, so Monday’s pullback looks perfectly normal, if not healthy, for both of these indices. The Nasdaq composite lost more ground, but still holds above its March highs and 50-day line. The Russell 2000 suffered the biggest loss, falling below its 50-day line.
The stock market rally did not suffer too much on the indices, Russell 2000 excluded. However, many top stocks had a tough session.
Financial data such as Goldman Sachs (GS) and Wells fargo (WFC) held its own, boosted by the rally in Treasuries yields, although they generally didn’t gain much ground. The cyclicals have worked well. Rio Tinto (RIO) approached a point of purchase as the lithium miner Albemarle (ALB) recovered its 50 day line and broke a downtrend.
Growth stocks that tried to come back, perhaps early buy signals, gained the upper hand. Tesla, Square as well as many names of software, such as Twilio (TWLO), tested or reduced their lines by 50 days. Worse yet, the names of fleas that erupted weeks ago have suffered significant losses.
Now, this may be a final reshuffle before growth stocks skyrocket. But they may continue to weaken, or the overall stock market rally may struggle again.
What investors should do now
It was already a “hard” market, as Minervini puts it. Just as a stock erupts or flashes an early buy signal, the sector often turns out of favor. Like Yoda who fights with a lightsaber, active investors have to work twice as hard to make pennies on the dollar, if they can even do it.
It is not an environment to be particularly aggressive. While it’s okay to be invested, holding on to long-term winners or stocks that you have a decent cushion on, there isn’t a compelling case for increasing exposure. Instead, investors should weed out the laggards and losers, especially as the earnings season accelerates.
Read The Big Picture daily to stay in sync with 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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