Why the market rally could use a vacation

Why the market rally could use a vacation

Dow Jones futures rose slightly overnight, along with S&P 500 and Nasdaq futures, ahead of the Thanksgiving holiday.


The stock market rally was positive for a second consecutive session. Fed officials expect slower rate hikes to come “soon,” according to minutes from the Fed’s November meeting released Wednesday afternoon.

The Nasdaq in the lead, driven by a rebound You’re here (TSLA). The major indexes are all solidly up so far in this holiday-shortened week. But a longer vacation for the market rally could be constructive.

Investors should be cautious about adding exposure given key technical resistance and notable economic reports ahead.

However, Dexcom (DXCM), UnitedHealth (A H), Neurocrine Biosciences (NBIX), Medspace Holdings (MEDP) and medical shock wave (SWAV) are five health care stocks showing interesting action.

DXCM stock and Neurocrine Biosciences are on the IBD ranking, with MEDP stock on the ranking watchlist. NBIX and Medpace shares are on the IBD 50.

Dow Jones Futures Today

Dow Jones futures were up 0.1% from fair value. S&P 500 futures advanced 0.15% and Nasdaq 100 futures climbed 0.2%.

US stock exchanges will be closed on Thursday for the Thanksgiving holiday. On Friday, US exchanges will close early at 1 p.m. ET. But other exchanges around the world will be open as normal on Thursday and Friday.

Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.

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Stock market rally

The stock market rally saw some swings on Wednesday, but prolonged gains, led by tech.

Initial unemployment insurance claims hit a three-month high, while continuing claims hit an eight-month high. S&P Global’s purchasing managers’ indices for U.S. manufacturing and services both signaled contraction.

The Fed minutes reinforced expectations of a 50 basis point rate hike at the Dec. 14 meeting. Markets are still in favor of another half-point move in February, but there is a decent chance of a quarter-point upside.

The Dow Jones Industrial Average rose 0.3% in trading on Wednesday. The S&P 500 index climbed 0.6%, led by TSLA stock. The Nasdaq composite jumped 1%. The small cap Russell 2000 edged up 0.1%.

U.S. crude oil prices fell 3.7% to $77.94 a barrel. Natural gas futures jumped 7.2%.

The 10-year Treasury yield fell 5 basis points to 3.71%. The two-year Treasury yield, more closely tied to the Fed’s rate hike outlook, fell below 4.5%.

The US Dollar fell significantly for a second straight session, back near recent lows.

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The iShares Expanded Tech-Software Sector ETF (IGV) climbed 1.5%. ETF VanEck Vectors Semiconductor (SMH) gained 0.9%.

The SPDR S&P Metals & Mining ETF (XME) edged up 0.3%. The US Global Jets ETF (JETS) rose 0.1%. The SPDR S&P Homebuilders ETF (XHB) climbed 0.5%. ETF Energy Select SPDR (XLE) fell 1.1%. The SPDR health care sector fund (XLV) rose 0.4%. Dow Jones giant UNH stock is XLV’s largest holding.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 2.9% and ARK Genomics ETF (ARKG) 0.9%. TSLA stock is a major holding in Ark Invest ETFs

Tesla stock jumped 7.8% to 183.20 on Wednesday, rebounding from Tuesday’s bear market lows as Citigroup moved the electric vehicle giant from a sale to a suspension. TSLA stock is still down 19.5% so far this month and is down about half in 2022.

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Stocks to Watch

Dexcom stock rose 1.7% to 112.92, finding support at the 21-day moving average. DXCM stock paused this month after increasing its profits on Oct. 28. Dexcom stock arguably has a long handle with a buy point of 123.46 after a seven-month consolidation. Investors could buy DXCM shares from an early entry on the 21-day line, perhaps using Tuesday’s high at 113.88 as a specific buy point.

Medpace stock fell 1.3% to 218.81 on Wednesday. Shares have consolidated near record highs since surging 38% on Oct. 25 after earnings. Since then, MEDP stock has forged a messy grip on a year-old deep cup base. While stocks have seen strong intraday swings, MEDP stocks are currently on track to forge a tight three-week pattern by Friday’s close. Investors could use the Nov. 15 close at 226.57 as an early entry, above the bulk of recent trades.

NBIX stock fell 1.5% to 118.97. Stocks are consolidating near multi-year highs, extended from an October breakout. Despite a dip at the 50-day line last week, Neurocrine stock has a tight three-week pattern that is on track for a fourth week. Technically, this has a buy point of 126.09, although investors may want to wait for calmer action.

Shockwave stock jumped 4.7% to 264.06 on Wednesday, returning above its 21-day line but hitting resistance at the 50-day line. After a failed breakout in late October and a selloff that continued on earnings, SWAV stock has rebounded over the past week. A new base will take longer, but aggressive investors could use a strong move above 50 days as an early entry.

UNH stock soared 1.3% to 529.71, bouncing above its 50- and 21-day lines after briefly breaking above its 200-day line last week. UnitedHealth’s stock was once a long-term leader in IBD and still shares many characteristics. Investors could use a bounce off the 50-day line either as an early entry or as a long-term Leader entry. The UNH stock needs to forge a new base after a quick failed breakout from a handle cup base last month.

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Market rally analysis

The stock market rally added to Tuesday’s gains. The S&P 500 just broke above its Nov. 15 intraday high and closed within 1% of its 200-day line.

The Russell 2000 has come up to its 200 day line.

The Nasdaq added to Tuesday’s rebound from the 21-day moving average, although it is still below its Nov. 15 short-term high and well below its 200-day mark.

The Dow Jones came within 20 points of its August 16 intraday high.

The S&P 500 moving decisively above its 200-day line — which roughly coincides with a trendline of falling 1-year highs — is a huge test for the market’s rally.

A flurry of economic data could swing Fed rate expectations and thus the stock market. On Wednesday, November 30, the October JOLTS report will show job openings, with Fed Chief Jerome Powell speaking later in the day. On Thursday, the PCE price index, the Fed’s preferred gauge of inflation, will be released, along with jobless claims and the ISM manufacturing index. The November jobs report is due on Friday, November 2.

Ideally, the market would move sideways for a few days, at least letting the 21-day line catch up, heading towards these economic reports.

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What to do now

The market rally has shown nice gains this week, with more stocks showing buy signals over the past few days. Investors could have added a bit more exposure as a result.

But they may want to be cautious before making any major new purchases with the S&P 500 hovering below its 200-day line and so many critical Fed cuts expected next week.

Also consider taking partial profits on fast rising stocks. Stocks made short-lived gains amid a choppy uptrend and sector rotation.

Still, investors should work hard on their investment shopping lists, looking for setups and names that work across a variety of sectors.

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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