Futures rose solidly.The stock market rally faces a big test after heavy loss last week. Here's what investors should be doing now.
Dow Jones futures rose sharply early Monday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally came under pressure last week, with the Nasdaq and speculative growth names hardest hit.
Tesla(TSLA) rivalNio(NIO) andZoom Video Communications(ZM) report earnings Monday, but both big 2020 winners are well off highs, along with Tesla stock itself.
This is a time to be defensive and looking for stocks that are holding up well.Taiwan Semiconductor(TSM),General Motors(GM),RH(RH),Target(TGT) andInMode(INMD) are worth watching to see if they can form proper bases while the market sorts itself out.
The market rally, now an uptrend under pressure, is at a turning point. Regaining key support levels would signal renewed strength. But a Nasdaq break below last week's low would send a bearish signal.
Tesla stock and Taiwan Semi are onIBD Leaderboard. Tesla and TSM stock are on theIBD 50. RH was Friday'sIBD Stock Of The Day.
Dow Jones Futures Today
Dow Jones futures rose 1.2% vs. fair value. S&P 500 futures advanced 1.3% and Nasdaq 100 futures jumped 1.65%.
Reserve Bank of Australia said it will buy 4 billion in Australian dollars ($3.1 billion) in long-term bonds, double what it had been buying.
The House passed the $1.9 trillion Biden stimulus plan Saturday, including $1,400 stimulus checks for many Americans. It also has a $15 minimum wage that can't be included under Senate rules for a budget reconciliation bill. A couple of moderate Democratic Senators will play a key role in how large the stimulus plan ultimately is.
The Caixin China manufacturing index fell 0.5 point in February to 50.9. Earlier, China's official manufacturing index fell from 51.3 in January to 50.6 in February. The services sector gauge fell 1 point to 51.4. Readings above 50 indicate growth.
Remember that overnight action inDow futuresand elsewhere doesn't necessarily translate into actual trading in the next regularstock marketsession.
Bitcoin Price
The Bitcoin price traded below $47,000 Monday morning, off Sunday's lows. The cryptocurrency had trended lower since topping $58,000 on Sunday, Feb. 21. It's still above the sub-$40,000 level when Tesla disclosed it had bought $1.5 billion worth of Bitcoin.
Bitcoin and some related plays, such as Grayscale Bitcoin Trust (GBTC), has been falling toward their 50-day lines. That could be a key level of support.
Ethereum also has fallen sharply in the past week, as speculative investing sours. Dogecoin, which Elon Musk has personally invested in, also has sold off.
Coronavirus News
Coronavirus cases worldwide reached 114.69 million. Covid-19 deaths topped 2.54 million.
Coronavirus cases in the U.S. have hit 29.25 million, with deaths above 525,000.
The FDA on Saturday approved theJohnson & Johnson(JNJ) coronavirus vaccine for emergency use. An advisory panel late Friday recommended approval for the one-shot vaccine. J&J has pledged to provide 20 million doses in March and 100 million by the end of June.
Vaccinations hit a record 2.4 million shots on Saturday, breaking Friday's record of 2.2 million.
The stock market rally had a lot of wild intraday swings, with the major indexes finishing with notable decline, near weekly lows.
The Dow Jones Industrial Average fell 1.8% in last week'sstock market tradingafter hitting a record high Wednesday. The S&P 500 index sank 2.5%. The Nasdaq composite tumbled 4.9%.
The 10-year Treasury yield rose 9% to 1.46% after briefly topping 1.6% on Thursday. While good news for many financials, higher rates weighed on growth stocks.
Among thebest ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 6.6% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) plunged 7.8%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 6.8%, with Zoom Video stock a key component. The VanEck Vectors Semiconductor ETF (SMH) fell 5.1%, with TSM stock the top holding.
Reflecting more-speculative story stocks, Ark Innovation ETF plummeted 14.8% and Ark Genomics ETF 13.8%. Tesla stock is the top holding across Ark Invest's ETFs.
Chinese EV maker Nio and videoconferencing leader Zoom Video report earnings late Monday. Nio earnings and delivery forecasts will be closely watched, as competition heats up in China's EV market. Zoom Video should stream in with another quarter of huge growth, with investors eager for insight into the company's prospects as we move into a post-pandemic world later this year.
Zoom stock sank 10.5% last week to 373.61, below its 10-week line. Shares did find support at their 200-day moving average Friday. Investors who rode the huge gains in 2020 and are still holding ZM stock might choose to hold strong, but otherwise there are not strong reasons to have a position right now.
Nio stock plunged 17% last week to 45.78, now 16% below its 10-week line. That's a decisive break and a strong sell signal, especially with earnings on tap. Longtime holders sitting on a huge gain could choose to hold some shares into the earnings report.
As for Tesla stock, the EV leader skidded 13.5% to 675.50. It's now 14% below its 10-week line. It's given up roughly half the gains from its powerful November rally. As with Nio, TSLA stock investors likely should have taken at least partial profits by this time.
Stocks To Watch
TSM stock tumbled 7.8% to 125.94 last week, but found support at the 50-day and 10-week moving average, edging higher Friday. In a strong market rally, investors might be looking for a rebound as a buying opportunity. But for now, investors likely should wait for TSM stock to finish a new base as the market sorts itself out.
General Motors sank just 2.4% last week to 51.33, but also found 10-week line support, bouncing slightly higher Friday. It could soon have a new base after hitting a record high in early February.
RH stock retreated 2.9% to 490.37 last week, testing its 50-day and 10-week lines. It has a flat base with a 542.11buy point.
Target stock fell 2.9% last week to 183.40, below its 50-day and 10-week lines. But it's still within a flat base with a 200.06 buy point. Target earnings are due Tuesday morning.
InMode stock dipped 0.2% to 68.96 and rose 2.7% on Friday. Shares have traded tightly over the past few weeks after hitting record highs. INMD stock has found support at the 21-day a few times in recent weeks. Therelative strength lineis right at record highs. INMD stock needs to form a base, but the action has been very strong.
Stock Market Rally Analysis
The major indexes retreated last week, especially the Nasdaq composite. The tech-heavy index tried to regain its 50-day moving average on Friday, but failed to close above it amid heavy selling at the close. Also, volume was much lighter on the up days than the downside.
For much of the week, the stock market rally looked like it might be in a violent sector rotation out of speculative growth and into real economy cyclical names. The Dow Jones hitting a record high on Wednesday provided further evidence.
However, the Dow Jones and S&P 500 fell sharply on Thursday-Friday, barely closing above their 50-day lines.
All the major indexes are below their21-day exponential moving average. The 21-day line served as support for the Nasdaq during the April-September stock market rally and in the postelection market rally. But in recent days it's served as resistance.
On the downside, Tuesday's intraday low for the Nasdaq looms large. That low is essentially at the 13,000 level and the Jan. 29 low. A close below that area would likely mark the end of the current stock market rally. But we're not there yet.
The Dow Jones and S&P 500 breaking below their 50-day lines also would be a grim sign for the market rally.
What You Should Do Now
Investors should be wary of making new buys until the Nasdaq is back above its 21-day line. You should have reduced exposure substantially over the past couple of weeks. If the Nasdaq undercuts and closes below Tuesday's low, that would be a signal to move further into cash.
Analyze your holdings. Are there stocks you should have sold partially or entirely last week? Which are your long-term bets that you want to hold a core position in?
Even if you're entirely in cash, it's important to stay engaged. Work on your watchlists, focusing on high RS stocks like Taiwan Semiconductor and Target.
Check out the Relative Strength At New High list on theIBD Stock Screener. Also use the RS Line At New High and RS Line Blue Dot stock lists onMarketSmith.
Make sure you're looking at commodity-related plays, financials and other cyclicals.
Review your trades from the past several months. Look at your big winners and losers. Look for stocks that you owned that you sold too soon, missing out on big winners. Identify the chart patterns and the strengths and weaknesses in your trading moves.