Dow Jones futures will open Sunday evening along with S&P 500 futures and Nasdaq futures.
The stock market rally generally fizzled out last week, but the major indexes found support at key levels. However, many promising stocks pulled back shortly after crossing their buy points. Investors should follow some rules for the current trading environment, from exposure to partial profit taking.
Vertex Pharmaceuticals (VRTX), Charles Schwab (SCHW), Perfect the energy (EE) and CALX stocks are running, whereas Celsius (CELH) is established.
Vertex and CELH stocks are on the IBD 50 list. VRTX stock is also in the IBD Big Cap 20. Calyx (CALX) was Friday’s IBD Stock of the Day, with Excelerate Energy and SCHW stocks picked earlier in the week.
It is a stock that does not hold up well Tesla (TSLA). Tesla shares fell last week, hitting fresh bear market lows on Friday.
Dow Jones Futures today
Dow Jones futures open at 6:00 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Remember that an overnight move in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD’s experts as they analyze the stocks that made the most of the stock rally on IBD Live
Stock market rally
Outside of the Dow, the stock rally showed modest losses after the previous week’s big gains, although there was a not-insignificant pullback from Tuesday’s highs to Thursday’s lows.
The Dow Jones Industrial Average posted a small gain in stock trading last week. The S&P 500 index fell 0.7%. The Nasdaq lost 1.5%. The small-cap Russell 2000 yielded 1.7%.
The 10-year Treasury 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. Zero Covid signals from China and hawkish Fed comments fueled demand concerns. The price of natural gas increased by 7.2%.
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.1% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) fell 0.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 3.55%, with cloud software names taking a hit. VanEck Vectors Semiconductor ETF (SMH) retreated 0.65%, hitting resistance at the 200-day line.
Reflecting more speculative story stocks, the ARK Innovation ETF ( ARKK ) lost 9.5% last week, while the ARK Genomics ETF ( ARKG ) lost 11.1%. TSLA stock is a core holding among Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) fell 1.9% last week. The Global X US Infrastructure Development ETF ( PAVE ) was down 0.1%. The US Global Jets ETF (JETS) fell 2.9%. The SPDR S&P Homebuilders ETF ( XHB ) fell 3%. The Energy Select SPDR ETF (XLE) lost 1.6%, while the Financial Select SPDR ETF (XLF) lost 1.4%. The Healthcare Select Sector SPDR Fund ( XLV ) rose 0.9%. VRTX is part of the XLV fund.
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Stocks Close to Buy Points
Last week, VRTX shares rose 3.75% to 314.63, retrieving a 306.05 buy point from a flat base that was part of a base-matching formation. The biotech fell for the day on Nov. 11 but pared losses as medical stocks remained under pressure. The relative strength line is off recent highs, but has shown steady progress all year. Vertex revenue growth remains strong.
SCHW shares traded up 2.45% to 79.81 on Friday, breaking a one-wire downtrend and offering an early entry. The official buy point is 81.18 from a deep, nine-month handle cup base. However, the handle also formed just above the major entry of a bottom at 77.51.
Shares of EE rose 2.7% to 27.17 on Friday, breaking a downtrend. According to MarketSmith analysis, the April IPO has a buy point at 28.49 official cups.
CALX shares rose 6.6% to 69.82 on Friday, hitting their 21-day moving average without pulling back. This pullback followed a gap in gains after several weeks of heavy trading. Calix earnings are still declining, but government funding for rural broadband is expected to drive further growth.
Celsius shares rose 3.9% last week to 96.99, but fell lower on Friday. This can be good news. The energy drink maker has a consolidation buy point of 118.29. A break here may suggest a lower entry, although this is too low to be a valid handle. The 50-day line is still moving for shares of CELH, but the 10-day and 21-day lines are crossing above this key level.
Tesla shares fell a little more than 8% last week to 180.19 and fell to 176.55 on Friday. This continues a steep slide since late September, following declines of 5.5% and 9.2% in the previous two weeks.
It’s a tough environment for aggressive growth stocks, especially EV makers. As production ramps up and competition heats up, Tesla is causing some demand concerns. This has reduced prices in China, which are likely to fall further as subsidies expire on December 31. Meanwhile, the “Twitter circus” is worrying. CEO Elon Musk’s chaotic reign of just three weeks risks damaging the Tesla brand.
Tesla is still growing strongly, while new US subsidies should boost demand at home in 2023.
But TSLA stock has been trending toward or lower in multi-year directions. So while the EV giant could be on the rise again, investors should wait for the chart to reset. This may take a long time.
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Market rally analysis
The stock market rally had a down week. Indices rose initially after the previous week’s big CPI-led rally, but then pulled back from Tuesday’s highs, testing key levels on Thursday. But stocks rallied modestly from Thursday’s lows.
With sharp recent gains and the S&P 500 nearing its 200-day line, the market break was not a huge surprise. Holding support areas is positive, and the Nasdaq’s 21-day line is about to break above 50 days. Assuming the indices maintain these levels and eventually move higher, it 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 with the retreat of the indexes, many of these names were quickly relegated to the bottom of the records. Some may recover quickly or be established soon, but this will likely depend on the market.
Energy stocks had a tough week as crude oil prices fell, although LNG EE stock was an exception.
Medical stocks, pressured by defensive growth names, rallied again this week. This includes the VRTX fund, as well as many biotech and health insurance.
Network companies like Calix, some financial companies like Schwab, as well as building materials and a number of sectors still look interesting.
Aggressive growth was not a good week. This includes Tesla stock, cloud software, and ARK-type titles. CELH shares were an exception.
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Investment Rules for This Market Rally
Investors should always have sound trading rules. But the current tough market rally means investors should emphasize light, flexible trading. Here are seven guidelines.
Hold the exposure light: This is not a crazy bull market. Investors should take part in this rally, but this is not the time for margin.
Add Exposure Gradually: Do not increase the exposure too quickly. Let’s say buying a bunch of stocks on Tuesday would have resulted in quick losses as the market pulled back. Let the market slowly draw you in.
Look for Early Access: Breakouts have struggled in 2022, partly due to choppy markets and sector rotation. The stock may be due for a pullback, especially when it reaches a traditional buy point from a deep base. Early entries give you a chance to get in on promising stocks before mini breakouts.
Take partial profits: Given the bearish nature of the current uptrend, investors should consider taking partial profits quickly. This can give you the confidence to manage the rest of the position. Know the nature of your possessions. Some stocks are more prone to large volatile movements, partial profits are especially important.
Know Your Line in the Sand: You should enter a trade knowing where you are going to exit, either fully or scale back. If the stock moves up, you can move your stops higher.
Leadership diversity: While it’s a good idea to focus on a small number of holdings, don’t over-concentrate on a particular sector or theme. Sector rotation has hit defense, defensive growth and growth stocks in turn over the past few days. Try to get leading stocks from different backgrounds.
Get ready: If you want to buy the best stocks, you need to do your homework on early entries. Work through the screens to create your watch lists. Look out for “ready-made” or near-specific names, but there’s also an extensive list of quality stocks starting to build.
Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson for stock updates and more.
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