Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures.
The stock market rally generally lost ground over the past week, but major indices found support at key levels. However, many promising stocks retreated shortly after crossing the buy points. Investors should follow a few rules for the current trading environment, from low exposure to taking partial profits.
Apex Pharma (VRTX), Karl Schwab (BLACK), Excel Energy (EE) and CALX stocks are capable of trading Celsius (CELH) builds up.
VRTX shares are on the IBD 50 list. Calix (CALX) was the IBD stock of the day on Friday, with Excelerate Energy and SCHW stocks being selected earlier in the week.
One stock that’s not holding up well is Tesla (TSLA). Tesla stock plummeted over the past week, hitting fresh bear market lows on Friday.
Dow Jones futures today
Dow Jones futures open at 6:00 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
stock market rally
Outside of the Dow, the stock market rally showed modest losses after last week’s big gains, although there was a not inconsiderable drop from Tuesday’s highs to Thursday’s lows.
The Dow Jones Industrial Average made a slight gain in trading last week. The S&P 500 index fell 0.7%. The Nasdaq Composite was down 1.5%. Small cap Russell 2000 fell 1.7%.
The 10-year government bond yield rose 1 basis point to 3.82% after falling to 3.69% on Wednesday.
US crude oil futures fell 10% last week to $80.08 a barrel. China’s zero-Covid signals and hawkish Fed comments raised demand concerns. Natural gas prices increased by 7.2%.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) slipped 1.1% last week, while Innovator IBD Breakout Opportunities ETF (BOUT) slipped 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 3.55%, with cloud software names hit hard. The VanEck Vectors Semiconductor ETF (SMH) is down 0.65% and met resistance at the 200-day moving average.
Mirroring more speculative story stocks, ARK Innovation ETF (ARKK) plunged 9.5% and ARK Genomics ETF (ARKG) 11.1% last week. TSLA stock is a key position in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) is down 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) is down 3%. The Energy Select SPDR ETF (XLE) was down 1.6% and the Financial Select SPDR ETF (XLF) was down 1.4%. The Health Care Select Sector SPDR Fund (XLV) rose 0.9%. VRTX is part of the XLV fund.
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Stocks near buy points
VRTX stock is up 3.75% for the past week to 314.63, reclaiming a buy point of 306.05 from a flat base that is part of a basis-on-basis formation. The biotech tumbled midday on Nov. 11 as medical stocks came under pressure but pared losses. The relative strength line is below recent highs but has shown steady progress throughout the year. Vertex earnings growth remains strong.
SCHW stock rose 2.45% to 79.81 on Friday, breaking a brand’s downtrend and offering an early entry. The official buy point is 81.18 from a deep 9-month cup-and-handle base. However, the handle also formed just above a base entry of 77.51 to the bottom.
EE shares rose 2.7% to 27.17 on Friday, also breaking a mark downtrend. The April IPO has an official buy point of 28.49, according to MarketSmith analysis.
CALX stock rose 6.6% to 69.82 on Friday, staging a bullish recovery from a pullback to the 21-day moving average. This pullback followed an earnings gap after several weeks of tight trading. Calix’s revenues are still declining, but government funding for rural broadband is expected to spur future growth.
Celsius shares rose 3.9% to 96.99 last week but reversed lower on Friday. That could be good news. The energy drink maker has a consolidation buy point of 118.29. A break here could offer a lower entry, although it’s too low to be a proper grip. The 50-day moving average is still floating for CELH stocks, but the 10-day and 21-day moving averages are crossing above this key level.
Tesla shares fell a little over 8% over the past week to 180.19 and slipped to a fresh bear market low of 176.55 on Friday. This was followed by declines of 5.5% and 9.2% in the previous two weeks, continuing the sharp decline since late September.
It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has some concerns about demand as production swells and competition increases. It has slashed prices in China, with more cuts likely as subsidies expire on December 31. Meanwhile, the “Twitter circus” remains a problem. CEO Elon Musk’s chaotic reign in just three weeks could hurt the Tesla brand.
Tesla is still growing strongly, while new US subsidies should boost domestic demand in 2023.
But TSLA stock has traded sideways or down for several years. So while the EV giant could turn higher again, investors should wait for the chart to straighten out. That can take a long time.
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Analysis of the market rally
The stock market rally had a bearish week. After last week’s big CPI-driven rally, indices initially rose but then retreated from Tuesday’s highs and tested key levels on Thursday. But shares recovered slightly from Thursday’s lows.
A market pause came as no great surprise given the strong recent gains and as the S&P 500 index approaches its 200-day moving average. Holding of support areas is positive while the Nasdaq 21-day moving average is about to breach the 50-day moving average. Assuming the indices hold these levels and eventually move higher, this would be a constructive week for the major indices.
But it’s been a frustrating week for leading stocks. A decent number of stocks broke or flashed buy signals earlier in the week. But as the indices were retired, many of these names quickly reappeared among the entries. Some could recover quickly or build up soon, but that will likely depend on the market.
Energy stocks have had a tough week as crude oil prices fell, although LNG stocks in the renewables sector are an exception.
Medical stocks, which came under pressure from defensive growth stocks, rallied this week. This includes VRTX stocks as well as many biotechs and health insurers.
Networking firms like 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. These include Tesla stock, cloud software, and ARK-type names. The CELH share was an exception.
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Investment rules for this market rally
Investors should always have sound trading rules. But the current tricky market rally means investors should emphasize light, flexible trading. Here are seven guidelines.
hold exposure light: This isn’t a crazy bull market. Investors should participate in this rally, but this is not the time to be on margin.
Gradually add exposure: Do not increase exposure quickly. Buying a bunch of stocks on Tuesday, for example, would have resulted in quick losses in the resulting market decline. Let yourself be gradually attracted to the market.
Look for early entries: Breakouts struggled in 2022, in part due to choppy markets and sector rotation. By the time a stock hits a traditional buy point, especially from a deep base, a pullback may be due. Early entries offer a chance to get into promising stocks before the mini-run pauses.
Take partial profits: Given the up-and-down nature of the current uptrend, investors should consider taking quick partial profits. This can give you the confidence to let the remaining position ride. Know the character of your stocks. Some stocks are more prone to large volatile moves, with partial gains being particularly important.
Know your line in the sand: You should enter a trade knowing where you will exit, either outright or by scaling. If the stock is rising, you might move your stops higher.
Diversity of leadership: While it’s a good idea to focus on a small number of holdings, you shouldn’t focus too much on a particular sector or theme. Sector rotation has alternately hit defensive, defensive growth, and growth stocks over the past few days. Try to buy leading stocks from different backgrounds.
Be prepared: If you want to buy the best stocks, you need to do your homework on early entries. Work on screens to build your watch lists. Focus on specific names that are “done” or nearly done, but also have a broad list of quality stocks that are starting to take hold.
Read The Big Picture every day to keep up to date with 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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