Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures.
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The stock market rally generally lost ground last week, but major indices found support at key levels. However, many promising stocks retreated shortly after crossing the buy points. Investors should follow certain rules for the current trading environment, ranging from keeping exposure light to taking partial profits.
Vertex Pharmaceuticals (VRTX), Charles Schwab (BLACK), excel energy (EE) and CALX shares are mineable, while Celsius (CELH) takes place.
Vertex and CELH stocks are on the IBD 50 list. VRTX stock is also on the IBD Big Cap 20. Calix (CALX) was the IBD stock of the day on Friday, with Excelerate Energy and SCHW stocks selected earlier in the week.
A stock that is not holding up well is You’re here (TSLA). Tesla stock plunged last week, hitting fresh lows in the bear market on Friday.
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
Outside of the Dow Jones, the stock market rally showed modest losses after the previous week’s big gains, although there was a sizable pullback from Tuesday’s highs to Thursday’s lows.
The Dow Jones Industrial Average made a fractional gain in stock trading last week. The S&P 500 index fell 0.7%. The Nasdaq composite fell 1.5%. Small cap Russell 2000 fell 1.7%.
The 10-year Treasury yield rose 1 basis point to 3.82% after falling to 3.69% on Wednesday.
U.S. crude oil futures plunged 10% last week to $80.08 a barrel. China’s zero Covid signals and hawkish comments from the Fed have raised concerns about demand. Natural gas prices rose 7.2%.
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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged down 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 3.55% as cloud software names were hit hard. ETF VanEck Vectors Semiconductor (SMH) fell 0.65%, hitting resistance at the 200-day line.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) plunged 9.5% last week and ARK Genomics ETF (ARKG) plunged 11.1%. TSLA stock is a major holding in Ark Invest ETFs.
The SPDR S&P Metals & Mining ETF (XME) fell 1.9% last week. The Global X US Infrastructure Development ETF (PAVE) fell 0.1%. The US Global Jets ETF (JETS) fell 2.9%. The SPDR S&P Homebuilders ETF (XHB) fell 3%. ETF Energy Select SPDR (XLE) lost 1.6% and ETF Financial Select SPDR (XLF) fell 1.4%. The SPDR health care sector fund (XLV) rose 0.9%. VRTX is part of the XLV fund.
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Stocks close to buy points
VRTX stock rose 3.75% to 314.63 last week, reclaiming a buy point of 306.05 from a flat base, part of a base-to-base formation. Biotech plunged intraday on Nov. 11 as medical stocks came under pressure but pared losses. The relative strength line is off recent highs, but has shown steady progress throughout the year. Vertex’s earnings growth remains strong.
SCHW stock jumped 2.45% on Friday to 79.81, breaking the downtrend by a handful, offering early entry. The official buy point is 81.18 from a nine month deep base with a cup with handle. However, the handle also formed just above a lower base entry of 77.51.
EE stock rose 2.7% to 27.17 on Friday, also breaking the downtrend by a handful. The April IPO has an official buy point of 28.49 cups with handle, according to MarketSmith analysis.
CALX stock jumped 6.6% to 69.82 on Friday, rebounding higher after a pullback towards the 21-day moving average. The pullback follows a profit gap after several weeks of tight trading. Calix’s revenues continue to decline, but public funding for rural broadband is expected to drive future growth.
Celsius stock rose 3.9% to 96.99 last week, but reversed on Friday. This could be good news. The energy drink maker has a consolidation buy point of 118.29. A break here might offer a lower entry, although it’s too low to be a good handle. The 50 day line continues to slide for CELH stocks, but the 10 and 21 day lines are above this key level.
Tesla Stock
Tesla stock fell just over 8% to 180.19 last week, sliding to a new bear market low of 176.55 on Friday. This followed declines of 5.5% and 9.2% in the previous two weeks, continuing a steep decline since late September.
It’s a tough environment for aggressive growth stocks, especially electric vehicle makers. Tesla has concerns about demand as production increases and competition intensifies. This is to reduce prices in China, with further reductions likely with the end of subsidies on December 31. Meanwhile, the “Twitter circus” remains a concern. CEO Elon Musk’s chaotic reign in just three weeks threatens to damage the Tesla brand.
Tesla continues to grow at a healthy pace, while new US subsidies are expected to support domestic demand in 2023.
But TSLA stock has had multi-year periods of drift or decline. So while the EV giant may rise again, investors should wait for the chart to recover. It could take a long time.
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Market rally analysis
The stock market rally had a down week. After the CPI-fueled surge of the previous week, the indices initially rose but then retreated from Tuesday’s highs, testing key levels on Thursday. But stocks rebounded slightly from Thursday’s lows.
A market pause was not a big surprise given recent gains and the S&P 500 index approaching its 200-day line. Maintaining support zones is a positive, while the Nasdaq 21-day line is poised to cross the 50-day mark. Assuming the indices maintain these levels and eventually move higher, it would be a constructive week for the major indices.
But it was a frustrating week for major stocks. A decent number of stocks broke or issued buy signals early in the week. But with the removal of the indexes, many of these names soon returned under the entries. Some may rebound quickly or settle soon, but that will likely depend on the market.
Energy stocks had a rough week as crude prices fell, although LNG play EE stock was an exception.
Medical stocks, which have come under pressure with defensive growth stocks, rebounded this week. This includes VRTX stocks as well as many biotechs and health insurers.
Networking companies such as Calix, some financials like Schwab, as well as building materials and a number of sectors still look interesting.
Aggressive growth has not had a good week. This includes Tesla stocks, cloud software, and ARK-like names. The CELH stock was an exception.
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Investment rules for this stock market rally
Investors should always have sound trading rules. But the current market’s tricky rally means investors should favor light and flexible trading. Here are seven guidelines.
Keep exposure light: This is not a crazy bull market. Investors should participate in this rally, but now is not the time to be on the sidelines.
Gradually add exposure: Do not increase the exposure quickly. Buying a bunch of stocks on, say, Tuesday would have created quick losses because of the resulting market pullback. Let the market pull you in gradually.
Look for the first entries: Breakouts have struggled in 2022, in part due to choppy markets and sector rotation. The moment a stock reaches a traditional buy point, especially from a deep base, it may be due for a pullback. Early entries offer a chance to enter promising stocks before the mini-race break.
Take partial profits: Given the bullish nature of the current uptrend, investors should consider taking early partial profits. This can give you the confidence to let the remaining position roll. Know the character of your holdings. Some stocks are more prone to large volatile moves, with particularly large partial profits.
Know your line in the sand: You need to enter a trade knowing where you will get out of it, either entirely or moving forward. If the stock is moving higher, you can increase your stops.
Leadership Diversity: While it’s a good idea to focus on a small number of stocks, don’t focus too much on one particular industry or theme. Sector rotation has alternately affected defensive, defensive growth and growth stocks over the past few days. Try to acquire top stocks from a variety of backgrounds.
Be ready : If you want to buy the best stocks, early entries, you need to do your homework. Work on screens to build your watchlists. Focus on specific names that are “ready” or close to being, but also have a large list of quality actions that are starting to fall into place.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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