Dow Jones futures fell slightly Monday morning, along with S&P 500 futures and Nasdaq futures. U.S. stock and bond markets are closed Monday for the Martin Luther King Jr. holiday.
The stock market rally picked up steam in the past week, with strong gains, clearing key levels. The S&P 500 briefly faced resistance at the 200-day line, but moved above that key level on Friday. A large number of leading stocks flashed buy points.
Investors can be adding exposure gradually as the market rally improves. While many top stocks are now extended, Wendy’s (WEN), Exxon Mobil (XOM), Quanta Services (PWR), Celsius Holdings (CELH) and Insulet (PODD) are all actionable from early entries. Wendy’s and PWR stock have new flat bases, joining XOM stock and Insulet. CELH stock needs another week to forge a proper base.
Tesla stock closed modestly lower but rebounded solidly for the week. But the EV giant faces a painful transition as investors increasingly view Tesla as an automaker, not a tech company.
The video embedded in this article discussed the strong week for the market rally, and analyzed WEN stock, Quanta Services and Celsius.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures sank 0.25%. Nasdaq 100 futures fell 0.4%.
U.S. stock markets are closed Monday, but other exchanges around the world were open.
The Bitcoin price briefly hit $21,415 Sunday night, a two-month high. The leading cryptocurrency is currently trading around $20,800. Bitcoin was just below $17,000 as recently as Jan. 8.
Bitcoin’s rise coincides with the stock market rally, which is showing a return to more speculative investments. That includes growth stocks, especially speculative-type plays like the ARKK ETF. Some meme stocks had a big week, notably Bed Bath & Beyond (BBBY). BBBY stock skyrocketed 179%, even though the retailer has signaled it’s heading toward bankruptcy.
Stock Market Rally
The stock market rally had a strong week, with the major indexes closing near session highs.
The Dow Jones Industrial Average rose 2% in last week’s stock market trading. The S&P 500 index popped 2.7%. The Nasdaq composite leapt 4.8%. The small-cap Russell 2000 jumped 5.3%.
The 10-year Treasury yield fell 6 basis points to 3.51%, even with Friday’s bounce. Markets strongly expect quarter-point Fed rate hikes in February and March, but then see policymakers on hold. Falling Treasury yields and brighter economic prospects elsewhere are pressuring the dollar, providing another boost to stocks and commodities.
U.S. crude oil futures jumped 8.3% to $79.86 a barrel last week. Copper prices jumped 7.65%.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) rallied 4.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2.1%. The iShares Expanded Tech-Software Sector ETF (IGV) leapt 4.9%. The VanEck Vectors Semiconductor ETF (SMH) soared 6.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) spiked 14.7% last week and ARK Genomics ETF (ARKG) just over 16%. TSLA stock is a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark has restocked its Tesla holdings in recent days and weeks.
SPDR S&P Metals & Mining ETF (XME) bounced 6.3% last week to a seven-month high. The Global X U.S. Infrastructure Development ETF (PAVE) rolled 4.2% higher. U.S. Global Jets ETF (JETS) ascended 9.4%. SPDR S&P Homebuilders ETF (XHB) gained 4.6%, despite weak KB Home (KBH) earnings. The Energy Select SPDR ETF (XLE) edged up 0.14%, with XOM stock a major component. The Financial Select SPDR ETF (XLF) rose 2.1%. The Health Care Select Sector SPDR Fund (XLV) edged down 0.2%.
Stocks In Buy Areas
Wendy’s stock staged a big upside reversal Friday, jumping 6% to 23.08 after hitting an intraday low of 21.36. WEN stock regained its 50-day line, moved above the 21-day and broke above a trendline. That offered an early entry in the new flat base. The official buy point is 23.88, according to MarketSmith analysis.
Wendy’s on Friday reported a fourth-straight quarter of accelerating sales growth, doubled its dividend and announced a $500 million buyback.
XOM stock rose 2.4% to 113.16 last week, its fifth straight weekly gain. Shares are slightly below the official 114.76 buy point, and they wouldn’t seem extended from the 50-day line with that move. But investors already could enter Exxon stock.
PWR stock jumped 6.7% to 148.50 last week, rebounding back above the 50-day line, offering an early entry. Shares also reclaimed a prior 144.41 buy point that’s no longer valid.
CELH stock popped Wednesday above the 50-day and 21-day line, breaking a downtrend, offering multiple reasons for an early entry. Shares held support at the 21-day, then peeked higher Friday. Celsius stock is actionable now after soaring 13.2% for the week.
Insulet stock rose 4.65% in the past week to 305.89, rebounding from the 21-day and 50-day lines. Shares are actionable now. But investors could wait for a break of a trendline, currently slightly above Friday’s high of 309.44.
Tesla Stock Downshifts To Auto?
Tesla stock rallied 8.3% to 122.40 last week, continuing a bounce from the Jan. 6 bear market low of 101.81. Shares edged down 0.9% Friday, well off intraday lows despite Tesla announcing sweeping price cuts in the U.S. and Europe. That came a week after Tesla slashed prices in China and key Asian markets.
The price cuts should fuel sales, especially in the U.S., with more Tesla EV variants eligible for a $7,500 tax credit. That means a huge price cut for U.S. consumers. But Tesla’s prized margins are likely to take a hit.
On Tuesday, investors will get weekly China EV registrations, which should show a big jump in Tesla sales, as well as any possible impact on rivals. But will Tesla have a lasting boost, especially in China and Europe? Orders significantly lagged deliveries in late 2022, so Tesla needs a big boost in new demand just to maintain the current delivery pace in 2023.
Already-fierce competition in China will intensify in 2023, with Tesla’s price reductions perhaps triggering a wave of margin-killing cuts. Europe is increasingly crowded, as well. Even the U.S. EV market will be more competitive in a year, with the tumble in used-car prices already a big drag on new-vehicle prices.
But setting aside Tesla’s EV sales, TSLA stock has a bigger problem. Investors increasingly view the EV giant as an automaker, not a tech company. Tesla’s current price-earnings ratio of 33 is not too steep for a tech growth company. But it’s unusually high for an automaker. Auto industry advantages and margins tend to erode relatively quickly, which may be happening to Tesla right now.
TSLA stock may deserve a high valuation for an automaker, reflecting the EV giant’s still-robust EPS and sales growth. But even so, that would suggest a much-lower valuation than it’s boasted up until recently.
Market Rally Analysis
The stock market rally had an encouraging week, building on strong Jan. 6 gains. The major indexes rose solidly, regaining key levels. A large number of leading stocks flashed buy signals during the week, with most holding or extending gains.
The S&P 500 index moved above its 50-day moving average and came up to its 200-day line. The benchmark index hit resistance at that key level on Thursday-Friday, but ultimately powered above it.
The Dow Jones, Russell 2000 and S&P MidCap 400 are above all their moving averages and closing in on their December short-term highs.
The Nasdaq reclaimed its 50-day moving average and moved above the 11,000 level. The laggard index had been close to its bear market lows at the start of the year.
On Friday, stocks opened solidly lower, as earnings initially hit airlines, health insurers and bank stocks, Tesla price cuts slammed auto stocks and an analyst downgrade hit big defense contractors.
Even without the negative headlines, the market arguably was due for a pullback after the strong gains and with the S&P 500 at the 200-day line.
Yet the market quickly bounced back and closed higher.
Industrials, the broad housing sector, many medicals as well as some retailers and restaurants are showing strength.
Tech names are still scarce among leading stocks, though they are trying to come back. The SMH chip ETF cleared its 200-day line this past week, while the IGV software ETF and ARKK are above their 50-day average.
The S&P 500 still needs to decisively clear the 200-day line. The December highs loom large for all the main indexes.
While the stock market appears to be less concerned about the Federal Reserve, with a path toward a rate hike pause, earnings season will take center stage.
What To Do Now
Investors can be making new buys as stocks continue to improve. But do so gradually. While the market rally has shown strength and resilience in recent days, a pullback would not be a surprise for the major indexes, key sectors or individual stocks.
Earnings season will intensify for the next few weeks, creating the potential for major swings. Exxon and Tesla stock will report within the next three weeks, along with tech giants Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN) and Google parent Alphabet (GOOGL).
So don’t get too concentrated into a particular sector, even if it’s performing well. Strive for a diversity of leading stocks.
Bulk up your watchlists. Look for stocks that are actionable, setting up, or potentially actionable if they pause or pull back. Broad strength, at least outside of tech, should offer a number of opportunities.
Read The Big Picture every day to stay in sync with the 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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