Dow Jones Futures: Market Rally Even Stronger Than It Looks; Tesla Leads 5 Stocks in Buy Zones
Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. The stock market rally resumed last week, with key indices crossing above key resistance.
It is not a definitive victory, even if it is close. Major stocks and other indicators are pointing to a healthier market recovery than the large cap indices alone would indicate. Although many market challenges remain, investors should gradually increase their exposure and prepare to dive deeper.
You’re here (TSLA) shares, Arista Networks (A NET), Enphase Energy (ENPH), Neurocrine Biosciences (NBIX) and Pure storage (PSTG) are in or near shopping areas. You’re here (TSLA) and ANET stocks are arguably around early entries, while Pure Storage clearly did on Friday. ENPH stock initially fell on Friday, but rebounded after holding above a trendline. NBIX stock is also holding just above a trend line.
NBIX stock is on the IBD ranking. PSTG stock is on SwingTrader. TSLA, Arista Networks, Enphase Energy and Pure Storage stocks are on the IBD 50. ENPH and Arista stocks are also on the IBD Big Cap 20.
In other news, Warren Buffett Berkshire Hathaway (BRKB) revealed on Friday evening that it had raised its western oil (OXY) at 26.8% versus 20.2%. OXY stock rose slightly on Friday night.
The video embedded in the article analyzed the action of the market rally last week and analyzed Tesla, GlobalFoundries (GFS) and PSTG shares.
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
The stock market rally extended recent losses on Tuesday, but then rebounded for strong weekly gains.
The Dow Jones Industrial Average rose 2.7% in stock trading last week. The S&P 500 index jumped 3.65%. The Nasdaq composite jumped 4.1%. The small cap Russell 2000 rebounded just over 4%.
The 10-year Treasury yield rose 13 basis points to 3.32%, the sixth weekly advance and close to June’s 11-year high of 3.48%.
U.S. crude oil futures hit their lowest levels since January during the week, but rebounded to end down just 0.1% at $86.79 a barrel. Natural gas futures fell 9%.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rebounded 2.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 2.55%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 5.6%. The VanEck Vectors Semiconductor (SMH) ETF rose 4.35%.
SPDR S&P Metals & Mining ETF (XME) jumped 6.1% last week. The Global X US Infrastructure Development ETF (PAVE) jumped 5.1%. The US Global Jets ETF (JETS) climbed 5.2%. The SPDR S&P Homebuilders ETF (XHB) rebounded 4.5%, even with Treasury yields rising. ETF Energy Select SPDR (XLE) gained 0.8% and ETF Financial Select SPDR (XLF) added 4.5%. The SPDR healthcare sector fund (XLV) jumped 4.4%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 9.9% last week and ARK Genomics ETF (ARKG) 8.85%. Tesla stock is a major holding in Ark Invest’s ETFs.
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Stocks to Watch
Tesla stock jumped 10.9% last week to 299.68, rebounding from its 50-day line to back above the 200-day moving average. The volume was anemic, however. Investors could possibly buy TSLA shares around here or just above the 300 level, with 314.74 as a near-handful entry. The electric vehicle giant is still far from official points of purchase.
Tesla has bounced back from Covid restrictions and dramatically increased production capacity. But rivals are also on the rise, with Chinese electric vehicle makers in particular producing new models in volume and dramatically expanding their international presence. It’s going to be interesting several months in the EV space for sure.
On Friday evening, Tesla CEO Elon Musk filed an additional reason to remove the $44 billion Twitter (TWTR) buyout deal: A severance package to whistleblower Peiter “Mudge” Zatko.
ANET stock jumped 6.1% last week to 124.11, bouncing off the 10-week moving average and recovering the 200-day and 21-day lines, but on lackluster volume. Arista Networks stock has a buy point of 132.97 from a double-bottom basis, but investors could take an early entry around current levels. Arista’s earnings and sales growth has accelerated over the past three quarters.
ENPH stock rose 9.5% to 305.70 last week. Stocks recovered their 21-day line on Tuesday, arguably offering an early entry on a short consolidation after a post-earnings surge to new highs. On Wednesday, Enphase stock was definitely exploitable, hitting new highs. On Friday, ENPH stock fell to 294.20 intraday on an analyst downgrade, but rebounded after never undercutting the trendline entry or reaching its 21-day line.
The relative strength line, aside from Friday’s decline, hit record highs as Enphase shares top the S&P 500.
NBIX stock rose 3.4% in the short week to hit 106.51, rebounding from the 10-week line. Stocks crossed a trendline on Thursday, then held above it on Friday.
PSTG stock climbed 3.9% at 30:30 a.m. for the week after testing its 50- and 200-day lines. After the flop of an August breakout, a new handle formed with a buy point of 31.62. But on Friday, stocks broke the downtrend of that handle and moved above the 21-day line, offering early entry.
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Market rally analysis
On Tuesday, the stock market rally appeared to be in its final moments. The major indices were beginning to lose sight of their 50-day line after falling back from the 200-day line in mid-August. The Nasdaq composite undermined late July lows, but it notably did not close below this zone.
From there, the big averages bounced back.
On Friday, the S&P 500 and small-cap Russell 2000 recovered to their 50-day moving averages at the open, joined in the afternoon by the Nasdaq. The Dow briefly crossed its 50-day line, but closed just below that key level.
With the S&P 500 now having some space above the 50-day line, it is perhaps premature to say that the overall market rally has decisively passed the key test.
One reason is that megacap stocks have been notable drags on the large-cap composite Dow, S&P 500 and Nasdaq, masking the underlying bullish action.
NYSE advances crushed decliners 5-1, while Nasdaq winners beat losers 5-2.
The S&P MidCap 400 recovered its 50-day line on Thursday, then broke above 21 days on Friday.
The Invesco S&P 500 Equal Weight (RSP) ETF, which does not overweight megacaps such as Apple (AAPL), Microsoft (MSFT) and Tesla, actually recovered its 50-day line on Wednesday, added gains on Thursday, then rallied above the 21-day line in convincing fashion on Friday.
To be fair, megacaps did well on Friday. Tesla stock posted a strong gain as Apple and Microsoft stock moved closer to key levels.
Despite ENPH stocks retreating on Friday, solar stocks remain the market leaders, along with pollution control and various medical names. But tech stocks such as ANET and Pure Storage stocks are also starting to show up.
Steel names rebound, while there is dispersed strength in retail and restaurants.
Oil and gas names stabilized along with underlying commodity prices after falling earlier in the week.
The market recovery remains “under pressure”.
It wouldn’t take much for the indices to break back below the 50-day line and back to last week’s lows. On the upside, the 200-day moving average is still a huge test ahead.
In addition to technical hurdles, Tuesday’s August consumer price index looms large. The CPI inflation report is unlikely to prevent the Federal Reserve from raising rates by 75 basis points for a third consecutive meeting on September 21. But a subdued report could bolster expectations of a slowdown in rate hikes later in the year.
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What to do now
The stock market rally has made real progress over the past three sessions. Investors should probably add some exposure at this point.
If the Nasdaq decisively clears the 50-day moving average, investors could likely become more aggressive, with a little leeway before the indices hit 200 days.
Create your watchlists. Cast a wide net overall, but definitely focus your attention on exploitable or potentially exploitable names.
While looking for opportunities, stay flexible. If the market rally falters again, be prepared to adopt a more defensive mindset and portfolio again.
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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