Market Rally holds key levels, but this one was tough. Tesla Woes Continue

Dow Jones futures will open on Sunday afternoon, along with S&P 500 and Nasdaq futures.




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The stock market rally generally lost ground last week, but major indexes found support at key levels. However, many promising stocks retreated shortly after crossing the buy points. Investors should follow certain rules for the current trading environment, from maintaining light exposure to taking some profits.

Vertex Pharmaceuticals (VRTX), Charles Schwab (SCHW), Excellent Energy (EE) and the CALX stock is active, while Celsius (CELH) is set up.

VRTX stock is on the IBD 50 list. Calix (CALX) was Friday’s IBD Stock of the Day, with Excelerate Energy and SCHW the picks earlier in the week.

A stock that does not hold well is Tesla (TSLA). Tesla stock took a dive last week, breaking to new market lows on Friday.

Dow Jones Futures Today

Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 and Nasdaq 100 futures.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


Join IBD’s experts as they analyze stocks that can act in the stock market’s rally on IBD Live


Stock market rally

Outside of the Dow, the stock market rally saw moderate losses after last 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 fractional gain in last week’s trading. The S&P 500 fell 0.7%. The Nasdaq composite sank 1.5%. The small-cap Russell 2000 fell 1.7%.

The yield on the 10-year note rose 1 basis point to 3.82% after falling to 3.69% on Wednesday.

U.S. crude oil futures fell 10% last week to $80.08 a barrel. China’s zero-Covid signals and hawkish comments from the Fed raised concerns about demand. Natural gas prices rose 7.2%.

ETFs

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 getting hit hard. VanEck Vectors Semiconductor ETF (SMH) fell 0.65%, hitting resistance at the 200-day line.

Reflecting the more speculative stocks, the ARK Innovation ETF ( ARKK ) plunged 9.5% last week and the ARK Genomics ETF ( ARKG ) fell 11.1%. TSLA stock is a major holding in 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 ) fell 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% and the Financial Select SPDR ETF (XLF) fell 1.4%. The Health Care Select Sector SPDR Fund (XLV) rose 0.9%. VRTX is part of the XLV fund.


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Stocks near buy points

VRTX stock rose 3.75% to 314.63 last week, claiming a 306.05 buy point from a flat base, part of a base-base formation. Biotech plunged intraday on Nov. 11 as medical stocks came under pressure but pared losses. The relative strength line is off recent highs but has shown steady progress all year. Vertex earnings growth remains strong.

SCHW stock fell 2.45% on Friday to 79.81, breaking a downtrend of a hold, offering an early entry. The official buy point is 81.18 from a deep cup base with a nine-month handle. However, the handle also formed just above a 77.51 bottom base entry.

The EU stock rose 2.7% to 27.17 on Friday, also breaking a downtrend of a hold. The April IPO has an official buy point of 28.49 cup-with-handle, according to MarketSmith analysis.

CALX stock jumped 6.6% to 69.82 on Friday, rebounding from a pullback to its 21-day moving average. That pullback followed a gap in gains after several weeks of tight trading. Calix profits are still falling, but government funding for rural broadband is expected to drive future growth.

Celcius stock rose 3.9% to 96.99 last week, but reversed lower on Friday. This could be good news. The energy drink company has a buy point of 118.29. A break here could provide a lower entry, although it is too low to be a proper hold. The 50-day line continues to slide for CELH stock, but the 10-day and 21-day lines are above this key level.

Tesla stock

Tesla stock fell a little more than 8% to 180.19 last week, sliding to a new market low of 176.55 on Friday. That followed declines of 5.5% and 9.2% in the previous two weeks, continuing the steep decline since late September.

It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has some concerns about demand as production swells and competition heats up. It is cutting prices in China, with more cuts likely as subsidies expire on December 31. Meanwhile, the “Twitter circus” remains troubling. CEO Elon Musk’s chaotic reign in just three weeks risks damaging the Tesla brand.

Tesla continues to grow at a strong pace, while new US subsidies are expected to boost domestic demand in 2023.

But TSLA stock has fallen into multi-year sideways or bearish territory. So while the EV giant could rev up again, investors will have to wait for the chart to rebuild. This can take a long time.


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Market Rally Analysis

The stock market rally had a falling week. Following last week’s big CPI rise, indices initially rose but then retreated from Tuesday’s highs, testing key levels on Thursday. But stocks rebounded modestly from Thursday’s lows.

The market pause wasn’t much of a surprise given the sharp recent gains and with the S&P 500 nearing its 200-day line. Holding support areas is positive, while the Nasdaq’s 21-day line is set to break above 50 days. Assuming the indices hold these levels and eventually move higher, this would be a constructive week for the major indices.

But it was a disappointing week for the top stocks. A decent number of stocks broke or flashed buy signals early in the week. But with the indexes declining, many of these names quickly reversed below the listings. Some may recover quickly or settle soon, but this will likely depend on the market.

Energy stocks had a tough week as crude prices fell, although LNG play EE was an exception.

Medical stocks, pressured by defensive growth names, rallied this week. This includes VRTX stocks as well as many biotech and health insurance companies.

Networking companies like Calix, some financials like Schwab, as well as building materials and some sectors still look interesting.

The offensive development didn’t have a good week. This includes Tesla shares, cloud software and ARK-type names. CELH stock was an exception.


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Investment rules for this market rally

Investors should always have sound trading rules. But the current difficult market rally means investors need to emphasize light, flexible trading. Here are seven guidelines.

Maintain exposure to light: This is not a mad bull market. Investors should be in on this rally, but this is not a time to take profit.

Add exposure incrementally: Do not increase exposure quickly. Buying a bunch of stocks on Tuesday, for example, would have created quick losses from the resulting market pullback. Let the market pull you in gradually.

Look for early entries: Breakouts have struggled in 2022, partly due to volatile markets and sector switching. By the time a stock reaches a traditional buy point, especially from a deep base, it may be due for a pullback. Early bird entries offer a chance to get into promising stocks before the mini run ends.

Get some winnings: Given the bullish nature of the current uptrend, investors should consider taking some profits quickly. This can give you the confidence to let the remaining position move. Know the nature of your holdings. Certain stocks are more prone to large volatile movements, with partial gains particularly significant.

Know your line in the sand: You should enter a trade knowing where you will exit, either in whole or in roll. If the stock goes up, you could move up your stops.

Leadership Diversity: While it’s a good idea to focus on a small number of farms, don’t concentrate too much on one particular area or topic. The sector shift has hit defense, defensive growth and growth stocks in turn over the past few days. Try to get top stocks from different backgrounds.

Get ready: If you want to buy the best stocks, in the first listings, you need to do your homework. Work on screens to create your watch lists. Focus on specific names that are “done” or nearly so, but also have a broad list of quality stocks that are starting to build.

Read The Big Picture every day to stay in sync 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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