Dow Jones futures will open Sunday afternoon, along with S&P 500 futures and Nasdaq futures.
The stock market rally had a huge week, with the Nasdaq posting its best weekly gain since March. Major indexes rose Thursday on a Fed-friendly inflation report. On Friday, the shift away from defensive names accelerated, with many medicals and other defensive or defensive growth plays falling sharply.
Although the buying opportunities in leading stocks are limited, investors should be looking to gradually add exposure.
Arista Networks (ANET), Pure storage (PSTG), Mobile (MBLY), Shift4Payments (FOUR) and Flex (FLEX) technology companies with strong growth but reasonable valuations. Flex stock and MBLY’s recent IPO stock are in traditional buy zones. FOUR stocks spurred aggressive entry as Arista Networks and Pure Storage took off.
Arista Networks and MBLY stock are on the IBD Leaderboard watch list. PSTG and Flex stock are on the IBD 50. ANET stock is on the IBD Big Cap 20.
The video embedded in this article discussed and analyzed a crucial week for the market rally Cigna (CI), Flex stock and MBLY.
Megacap stocks came on strong last week, but at or near the lows in the bear market. Apple (AAPL) and Microsoft (MSFT) reclaimed its 50-day moving average.
One big laggard is Tesla stock, which hit a two-year low last week. Tesla (TSLA) has been under pressure since CEO Elon Musk’s wild start to owning Twitter. Meanwhile, concerns about Chinese demand persist, even after a price cut on October 24 and a recent return to insurance subsidies.
Graphics and data center chip giant Nvidia (NVDA) earnings season is still active. Nvidia’s strong earnings and guidance, as well as results from a semiconductor equipment maker Applied Materials (AMAT), could keep the chip rebound going, a positive sign for the market rally. NVDA stock has rallied strongly over the past four weeks, but remains well below its 200-day line.
Bitcoin price traded below $17,000 on Saturday, relatively stable since Friday morning, but down sharply for the week after hitting $15,554.48 two years ago on Wednesday. Cryptocurrency exchange FTX, seen as the white knight of the industry only a few months ago, suddenly collapsed, with a bankruptcy filing shortly before the opening bell of the stock market on Friday.
The FTX fiasco, after several falls in the crypto industry earlier this year, heightens concerns about trust even as the fundamental value of cryptocurrencies falls.
Mid Term Elections
Democrats are maintaining control of the Senate, winning at least 50 seats. That could go to 51 if they hold their seat in the upcoming Georgia election. Republicans are still favored to take the House, but by a slim majority, that is by no means certain.
Dow Jones futures today
Dow Jones futures open at 6 pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that overnight activity in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market on IBD Live
Stock Market Rally
The stock market rally had been faltering since midweek, but rebounded on Thursday thanks to the cooler-than-expected inflation report. China eased Covid restrictions on Friday, giving stocks and commodities another boost.
The Dow Jones Industrial Average gained 4.15% in last week’s stock market trade. The S&P 500 index jumped 5.9%. The Nasdaq composite rose 8.1%. The small-cap Russell 2000 rose 4.6%.
Apple stock, which posted its worst close on Wednesday in nearly four months, rose to close with a weekly gain of 8.2%. AAPL moved above its 50-day line but is below its 200-day, where it hit resistance in late October. Microsoft stock rallied 11.6% back above its 50-day line after beating bear market lows on Nov. 3.
Tesla stock fell 5.5% to 195.97, but rebounded from Wednesday’s two-year low of 177.12. China’s increased incentives, following recent price cuts there, add to concerns about demand. But it’s Musk’s chaotic start to his Twitter reign that may be TSLA’s biggest stock draw. That includes Musk’s fresh Tesla stock sales and more long-term concerns that the “Twitter circus” is damaging the Tesla brand.
Nvidia rose 15.3% last week to 163.27, its fourth straight weekly advance and one of three double-digit gains.
The 10-year Treasury yield increased 33 basis points to 3.81%. Markets are strongly anticipating a 50-basis-point Fed rate hike in December and are heading for a quarter-point move in February.
The US dollar collapsed, suffering its worst weekly loss in years, reflecting tumbling results.
US crude futures fell 3.9% to $88.96 a barrel, despite Friday’s bounce.
Among the top ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) jumped 12.35% for the week, with MSFT stock a big component. VanEck Vectors Semiconductor ETF (SMH) rose 15.4%, moving above the 50-day line and approaching the 200-day. NVDA stock is an important holding.
The SPDR S&P Metals & Mining ETF (XME) has gained 3.9% over the past year. The Global X US Infrastructure Development ETF (PAVE) drove 5.4% higher. The US Global Jets ETF (JETS) rose 5.6%, its sixth straight weekly gain. The SPDR S&P Homebuilders ETF (XHB) rose 12.1%. The Energy Select SPDR ETF (XLE) rose 1.95%, just at a high. and the Financial Select SPDR ETF (XLF) jumped 5.8%. The Health Care Selective SPDR Fund ( XLV ) rose 1.75%, despite Friday’s slide.
Reflecting a more speculative story stocks, ARK Innovation ETF (ARKK) reversed from a five-year low to rise 14.6% last week while ARK Genomics ETF (ARKG) jumped 11.4%. TSLA stock remains a large holding across Ark Invest’s ETFs.
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Growth Stocks Near Buy Points
Arista Networks’ earnings and sales growth have been accelerating for four straight quarters, to 69% and 57%, respectively, in Q3. ANET stock fell 1.9% to 128.55 last week, but after two big weekly gains in heavy volume. Arista stock has an entry high handle of 133.80 in a consolidation going back to August 18 — or a longer consolidation going back to the end of 2021. ANET’s stock price-to-earnings ratio is 32.
PSTG stock gained 1.45% to 30.78 last week. Investors could use 31.62 as a buy point or early entry from a consolidation going back to August 18 or from a cup-to-handle base starting in late March. Pure Store’s earnings rose 129% in the most recent quarter on a 30% revenue gain. PSTG stock has a PE ratio of 27.
MBLY stock jumped 15.7% in the past week to 29.95, just after clearing the IPO base buy point of 29.86. Mobileye, which offers driver assistance systems, went public in late October at $21 a share, at the top of the official range but well below that owner’s valuation. Intel (INTC) hoped. Mobileye’s earnings rose 36% in the most recent quarter, with revenue growth of 41%. MBLY stock has a PE of 48.
FOUR stock jumped 17.8% to 47.30, but after a wild week. Shift4 payouts fell sharply on Monday after earnings, but then rebounded the rest of the week. On Friday, Shift4 stock claimed the 200-day line and broke a trend. FOUR stock has a 51.52 basis point buy, according to MarketSmith analysis. Shift4’s earnings increased 69% and revenue 45%, both accelerating from the previous quarter. FOUR stocks have a PE of 45.
FLEX stock rose 5% over the past week to 20.18, closing in a 19.73 buy point range. Shares are clearing a short base but also a long consolidation heading back into early 2021. FLEX’s earnings rose 31% in fiscal Q2 with revenue up 25%, both accelerating for the third straight quarter. Flex is part of the highly rated Electronics Manufacturing Group.
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Market Rally Analysis
The stock market rally had a crucial week. Already under pressure, the uptrend struggled with some significant losses on Wednesday that pushed the S&P 500 below its 50-day line.
But Thursday’s October CPI inflation report was a game changer, signaling slower Fed rate hikes and possibly a lower peak rate. The major indexes burst higher, as Treasury yields and the US dollar fell. The Dow Jones vaulted back above its 200-day line, and the S&P 500 and later the Nasdaq went up their 50-day lines and October highs. The Russell 2000 jumped over its 50-day and 200-day lines.
All that action pushed the market rally back into a “confirmed uptrend.”
Meanwhile, actionable stocks were hard to come by. Many of the big winners are megacaps hit down like Apple and Microsoft stock, as well as hit cloud software plays. On the flip side, defensive and defensive growth names that were leading the way suddenly came under pressure. That includes many physicians in the pharmacy, health insurer and drug distributor spaces. Defense contractors, auto parts retailers, restaurants, discounters and food producers also suffered losses.
Even outside that space there were some bad reversals in stocks, incl CF Industries (CF) and Enphase Energy (ENPH).
Building products, networking stocks and many energy plays are doing well. A few traditional automakers are showing strength, not Tesla. Some steel stocks are doing well, and miners are now catching up.
Chip names are also making a comeback, but most, like Nvidia stock, have a long way to go. Sun and medical products have some interesting names.
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What To Do Now
The stock market rally is taking off and positive inflation news is emerging. There appears to be a rotation away from defensive stocks and into growth, but actionable stocks are relatively limited.
Investors should want to add exposure, but Rush doesn’t need to. With so many stocks flashing buy signals so far, there are plenty of opportunities ahead if the market is bullish.
One option is to buy broad market or sector ETFs until more promising individual names emerge. Even then, keep the exposure moderate, letting the market pull you in over time.
As you add exposure, be careful not to become too concentrated in a particular sector.
But take those watch lists. Interesting stocks are forming and growth names are coming back. You want to be ready to buy the best names when they break out.
Read The Big Picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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