Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures.
The stock rally had a big week, with the Nasdaq boasting its best weekly gain since March. Major indexes rose Thursday on a Fed-friendly inflation report. Friday saw a shift away from defensive names, with many medical and other defensive or defensive stocks falling sharply.
While buying opportunities in leading stocks are limited, investors should look to gradually increase exposure.
Arista Networks (ANET), Clean storage (PSTG), Mobile phone (MBLY), Shift4Payments (FOUR) oath Flex (FLEX) are technology companies with strong growth but fair valuations. Flex and recent IPO MBLY shares are in traditional buy zones. FOUR stocks posted an aggressive post while Arista Networks and Pure Storage are setting up.
Arista Networks and MBLY stocks are on IBD Leaderboard’s watch list. PSTG stock and Flex are in the IBD 50. ANET stock is in the IBD Big Cap 20.
The video embedded in this article covered an important week before the market rally and analyzed Cigna (CI), Flex and MBLY stock.
Megacap shares were strong last week, but from lows or near lower markets. Apple (AAPL) oath Microsoft (MSFT) regained its 50-day moving averages.
One big laggard is Tesla stock, which hit a two-year low last week. Tesla ( TSLA ) faces concerns about demand in China, but much of the pressure may stem from CEO Elon Musk’s wild start owning Twitter.
Graphics and data center chip giant Nvidia (NVDA) is headed for another active earnings season. Strong earnings and guidance from Nvidia, along with results from the semiconductor equipment maker Practical material (AMAT), could keep the chip rebound going, a positive sign for a market rally. Shares of NVDA have risen sharply over the past four weeks, but remain well below the 200-day line.
The price of Bitcoin fell below $17,000 on Friday night and fell sharply this week after hitting a two-year low of $15,554.48 on Wednesday. Cryptocurrency exchange FTX, seen as the white knight of the industry just a few months ago, suddenly collapsed, filing for bankruptcy 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 overnight action in Dow futures and elsewhere does not necessarily translate to actual trading in the next regular stock market.
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Stock market rally
Stocks were underwhelming from the middle of the week, but rebounded on Thursday thanks to a cooler-than-expected inflation report. China eased Covid restrictions on Friday, giving stocks and commodities another boost.
The Dow Jones Industrial Average rose 4.15% in stock trading last week. The S&P 500 rose 5.9%. The Nasdaq Composite Index rose 8.1%. The small-cap Russell 2000 rose 4.6%.
Apple shares, which on Wednesday posted their worst close in nearly four months, closed higher with an 8.2% weekly gain. AAPL broke above its 50-day line but is below the 200-day, where it hit resistance at the end of October. Microsoft shares rose 11.6% back above their 50-day line after hitting bear market lows in November. 3.
Tesla shares fell 5.5% to 195.97, but rebounded from Wednesday’s two-year low of 177.12. Increased stimulus in China, following recent price cuts there, is adding to concerns about demand. But it’s Musk’s chaotic start to his Twitter reign that may be TSLA stock’s biggest drag. That includes Musk’s recent Tesla stock sale and more short-lived concerns that the “Twitter circus” is damaging the Tesla brand.
Nvidia rose 15.3% last week to 163.27, its fourth straight weekly gain and one of three double-digit gains.
The 10-year treasury yield fell by 33 basis points to 3.81%. Markets strongly expect a 50 basis point Fed rate hike in December and are leaning toward a quarter point hike in February.
The US dollar fell to its worst weekly loss in years, reflecting falling yields.
U.S. crude futures fell 3.9% to $88.96 a barrel, despite Friday’s gains.
Among the top mutual funds, the iShares Expanded Tech-Software Sector ETF ( IGV ) rose 12.35% for the week, with MSFT shares as the main contributor. VanEck Vectors Semiconductor ETF (SMH) rose 15.4%, breaking above the 50-day line and approaching the 200-day. NVDA stock is a key asset.
The SPDR S&P Metals & Mining ETF (XME) gained 3.9% last week. The Global X US Infrastructure Development ETF (PAVE) rose 5.4%. 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%, right at a high. and the Financial Select SPDR ETF ( XLF ) rose 5.8%. The Healthcare Sector SPDR Fund ( XLV ) rose 1.75%, despite Friday’s decline.
Reflecting more speculative sentiment, the ARK Innovation ETF ( ARKK ) rebounded from a five-year low, rising 14.6% last week, and the ARK Genomics ETF ( ARKG ) rose 11.4%. TSLA stock remains a major holding in all of Ark Invest’s ETFs.
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Growth stocks near buy points
Arista Networks’ earnings and sales growth have increased for four consecutive quarters, to 69% and 57%, respectively, in the third quarter. ANET shares fell 1.9% to 128.55 last week, but after two big weekly gains on high volume. The Arista stock index is at 133.80 on a consolidated basis going back to August. 18. The price of shares in ANET from profit was 32 at the close of Thursday.
PSTG shares rose 1.45% to 30.78 last week. Investors could use 31.62 as a buy point or early entry from either consolidation going back to August. 18 or from a cup with a handle starting at the end of March. Pure Storage’s profits rose 129% last quarter with a 30% increase in revenue. PSTG stock has a PE ratio of 27.
MBLY shares rose 15.7% in the past week to 29.95, just clearing the 29.86 IPO base buy point. Mobileye, which offers driver-assistance systems, went public in late October at $21 a share, which is at the top of the public range but well below the owner’s valuation Intel (INTC) had hoped. Mobileye’s profits rose 36% last quarter, with revenue growth of 41%. MBLY stock has a PE of 48.
FOUR shares rose 17.8% to 47.30, but after a wild week. Shift4 Payments fell sharply on Monday after earnings, but then rallied for the rest of the week. On Friday, Shift4 stock retook the 200-day line and broke a trend line. FOUR shares have a 51.52 low buy point, according to MarketSmith analysis. Shift4’s profit grew by 69% and revenue by 45%, both of which were up from the previous quarter. FOUR stocks have a PE of 45.
FLEX shares rose 5% over the past week to 20.18 and closed in a range of 19.73 buy points. Shares are clearing a short base but also a long consolidation that dates back to the start of 2021. FLEX’s fiscal second quarter earnings rose 31% and revenue rose 25%, both of which rose for the third quarter in a row. Flex is part of the highly regarded electronic contract manufacturing group.
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Market rally analysis
The stock rally had an important week. Already under pressure, the rally struggled with notable 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 perhaps a lower top rate. The major indexes rose, as Treasury yields and the US dollar fell. The Dow Jones bounced back above its 200-day line, while the S&P 500 and later the Nasdaq ran past the 50-day lines and highs in October. The Russell 2000 jumped above the 50-day and 200-day lines.
All of these actions pushed the market push back into a “confirmed boom.”
At the same time, practical stocks have been difficult to find. Many of the big winners are beaten megacaps like Apple Stock and Microsoft, as well as poorly played cloud software. On the other side, defensive and defensive growth names that have been leaders were suddenly under pressure. It includes many drugs in the pharmaceutical, health insurance and drug distribution spaces. Defense contractors, auto parts dealers, restaurants, discounters and food manufacturers also suffered losses.
Even outside that space, there were some nasty pullbacks in stocks, including CF Industries (CF) oath Enphase Energy (ENPH).
Building materials, internet stocks and many energy plays are doing well. Several traditional carmakers, not Tesla, are showing strength. A few steel sections have been successful, but miners are now emerging.
Chip names are also on the rise, 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 reviving with positive inflation news providing a tailwind. There appears to be a rotation out of defensive stocks and into growth, but functional stocks are quite limited.
Investors should look for increased risk, but there is no need to rush. With so few stocks flashing buy signals so far, there will be plenty of opportunities ahead if the market rally has legs.
One option is to buy broad market or sector ETFs until more promising individual names pop up. Even then, keep exposure moderate and let the market pull you in over time.
When adding exposure, be careful not to over-concentrate in a particular sector.
But then build a checklist. Interesting stocks are emerging while growth names are returning. 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 trends and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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