Dow Jones futures dipped Monday morning, S&P 500 futures fell and Nasdaq futures tumbled as Treasury yields climbed following the Senate passage of the Biden stimulus plan.
The stock market fell into a correction last week, with Friday’s advance the first day of a market rally attempt. The Senate passed the $1.9 trillion Biden stimulus plan on Saturday, with the House set to approve the legislation early this week.
A market correction offers a chance for stocks to set up in bullish bases. As the world shifts from a coronavirus pandemic and shutdowns to a more-normal economy, there could be a big shift in the next stock market rally. Tesla (TSLA), Teladoc Health (TDOC) and Zoom Video Communications (ZM) have had monster runs over the past year. Perhaps they and other big winners will make another run, but for now they look damaged.
CEO Elon Musk tweeted on Saturday that Tesla will “probably” offer a Cybertruck update sometime in the second quarter, such as a revised design, price and delivery date. Tesla has suggested that initial Cybertruck deliveries will slip to 2022, though that will depend on the Austin plant being completed as well as battery improvements.
Musk also said Full Self Driving Beta will be rolled out to more Tesla owners in the next few days.
But Tesla stock fell early Monday.
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Disney, Google Stocks To Watch
For now, wait for confirmation that a new stock market rally attempt has legs. Be prepared by working on your watch lists. Walt Disney (DIS), Microsoft (MSFT), Vale (VALE), Five Below (FIVE) and Google parent Alphabet (GOOGL) are five stocks near buy points that are worth considering for your watch list.
California announced late Friday that theme parks and stadiums can reopen with limited capacity starting April 1. Disney stock, which had closed in buy range, rose early Monday, but might still be actionable.
Fellow Dow Jones giant Microsoft is near a buy point. So are Vale, Five Below and Google stock.
Microsoft stock is on IBD Leaderboard and an IBD Long-Term Leader. Google stock is on the IBD 50 list of top growth stocks. Vale stock and Google were IBD Stock Of The Day selections last week.
Biden Stimulus Deal
The Senate passed the $1.9 trillion Biden stimulus plan on Saturday. That followed a late Friday deal on extended jobless benefits. House Majority Leader Steny Hoyer said the House plans to vote Tuesday on the Senate version of the Biden stimulus plan. It’ll then go to President Joe Biden to sign.
Passing the Biden stimulus plan could give the stock market a lift, especially real economy names. Then again, the stimulus plan may already be priced in.
Dow Jones Futures
Dow Jones futures were 0.1% below fair value, with Disney stock providing some support. S&P 500 futures fell 0.6%. Nasdaq 100 futures tumbled 1.5%. At one point Sunday evening, futures rose solidly across the board.
The 10-year Treasury yield rose to 1.60%, near recent highs, amid concerns that the U.S. economy will spur inflation as the pandemic fades and the Biden stimulus plan pours into the economy over the next several months.
Saudi Arabia’s energy minister said Sunday that oil tanks in Ras Tanura Port were hit in a drone attack while a ballistic missile targeted Aramco facilities. Crude oil futures edged higher Monday, paring modest overnight gains. Oil prices surged last week as OPEC+ agreed to keep production quotas intact through April.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.
Coronavirus cases worldwide reached 117.50 million. Covid-19 deaths topped 2.60 million.
Coronavirus cases in the U.S. have hit 29.69 million, with deaths above 537,000. New U.S. Covid cases were below 42,000 on Sunday, a five-month low.
U.S. coronavirus vaccinations hit 2.9 million on Saturday. On Sunday, vaccinations reached 2.4 million, which had been the old record. The seven-day average is now nearly 2.2 million.
Stock Market Last Week
The stock market rally significant damage last week, with IBD declaring a market correction after Thursday.
The Dow Jones Industrial Average actually rose 1.8% in last week’s stock market trading, though that all came in Friday’s advance. The S&P 500 index edged up 0.8% last week, thanks to Friday’s 1.75% gain. The Nasdaq composite slumped 2.1%, even with Friday’s 1.55% pop. The Russell 2000 slipped 0.3%, thanks to Friday’s 2.1% pop.
Growth stocks had another tough week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) both lost 4.7%, even with both rising just over 1% on Friday. The iShares Expanded Tech-Software Sector ETF (IGV) sank 5.05%, even with Microsoft stock its top holding. The VanEck Vectors Semiconductor ETF (SMH) tumbled 5.1%.
Reflecting more-speculative story stocks, ARK Innovation ETF plunged 10.2% and ARK Genomics ETF 8.95%.
Tesla, Teladoc, Zoom Stock Charts Damaged
Tesla stock is the top holding for Ark Investments overall. Teladoc stock also is a top five holding. ARK has added to Tesla and TDOC holdings in recent weeks and bought a lot of Zoom stock last week.
Teladoc stock and Zoom are two iconic coronavirus plays, with tremendous growth. While telemedicine and videoconferencing will likely keep growing as the pandemic ends, a lot of that growth may already be priced in. TDOC stock plunged 14% last week, tumbling through its 200-day line. Zoom skidded 9.7%, reversing sharply lower following earnings and also undercutting its 200-day.
Tesla stock has benefited from a huge boom in EV stocks. The EV market is going to expand rapidly in 2021, so there’s plenty of room to grow, but competition also is hitting up. Tesla stock dived 11.5% last week, even after slashing Friday losses. It’s above its 200-day line, but a long way from its 50-day line.
Tesla tumbling stock price may have been a catalyst for Musk’s tweets about the Cybertruck and FSD Beta. But TSLA stock fell 3% before Monday’s open.
Perhaps Friday marked the bottom for all three 2020 winners, and they’ll quickly march to new highs. But they’ve given no sign yet that they are done falling, let alone ready to lead. Investors should wait to see if Tesla, Teladoc and Zoom stock can show real strength, building bullish new bases before putting them on your ready lists.
Xpeng Earnings Mixed
Xpeng reported mixed quarterly results early Monday. XPEV stock fell 3%.
The China Passenger Car Association will release wholesale sales data for February on Tuesday. This will provide figures for Tesla’s China sales last month. Nio (NIO), Xpeng (XPEV), Li Auto (LI) and BYD Co. (BYDDF) have already released production and delivery data. All reported lower sales vs. January, with Lunar New Year holidays having an impact.
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Disney nudged up 0.4% to 189.84 last week, holding in range from a 183.50 flat-base buy point, according to MarketSmith analysis.
Late Friday, California said theme parks and stadiums could reopen with limited capacity starting April 1. That’s good news for Disney. Under the state’s new guidelines, cases in Orange County still need to fall further before Anaheim-based Disneyland could open. With vaccinations ramping up and cases trending lower, Disneyland looks like to open in some capacity in the near future.
Shares rose 2% early Monday to 194.50. That would push Disney stock above the 5% chase zone. However, aggressive investors could treat DIS stock as potentially actionable, breaking a downtrend in a mini-consolidation. Existing holders might use this as slight add-on buying opportunity.
Google stock rose 3.7% to 2,097.07 last week. Nearly all of that gain came on Friday, as shares rebounded from the 21-day line and broke a short downtrend in higher volume.
GOOGL stock has a three-weeks-tight pattern with a buy point of 2,145.24, according to MarketSmith chart analysis.
The relative strength line is at a record high, signaling Google’s outperformance vs. the S&P 500.
In a confirmed stock market rally, Google stock would already look like an aggressive entry or swing trade.
Vale stock shot up 9.6% to 17.74, just below a 17.78 cup-with-handle buy point. The RS line is above the handle high.
The Brazilian miner’s earnings growth is booming, and expected to remain so in 2021.
Five Below Stock
Five Below fell 1.5% to 183.36 last week, closing pennies below its 50-day line but with a nice shakeout Friday morning. FIVE stock is in a somewhat messy flat base, with a 198.20 buy point.
The tech and cloud giant dipped 0.3% to 231.60, but pared weekly losses on Friday to close back above its 50-day and 10-week. Microsoft stock is just below a 232.96 buy point after breaking out earlier, but the entry is still valid. Getting above that level also is likely to mean breaking a downtrend and retaking the 21-day line.
The relative strength line for Microsoft is not great, trending lower since July. But aside from Google, Microsoft has held up better in the last few weeks than most tech stocks.
Stock Market Analysis
The stock market rally suffered a fatal blow last week, with the major indexes breaking below key support levels by Thursday’s close.
On Monday, the Nasdaq rebounded from its 50-day line to peek above its 21-day exponential moving average, just shy of its Feb. 24 highs. Volume was notably weak, however. On Tuesday, the Nasdaq fell back to its 50-day line. On Wednesday, the composite plunged through its 50-day and slightly undercut its recent lows. By Thursday’s close, the Nasdaq broke well below those areas.
Meanwhile, the S&P 500’s low-volume Monday rally was surrounded by higher-volume sell-offs. On Thursday, the benchmark index tumbled well below its 50-day line. By Thursday’s close the Dow Jones was slightly below its 50-day and the small-cap Russell 2000 just above it.
During this time, leading stocks suffered losses. Growth names plunged, many to or below their 200-day lines. Even cyclical names came under pressure on Wednesday-Thursday.
So a stock market correction call at Thursday’s close was easy to make.
Market Rally Attempt: Day One
On Friday, stocks sold off again in the morning, especially the Nasdaq, but bounced back. The Dow Jones is back above its 21-day line, the S&P 500 above its 50-day. The Nasdaq has bounced, though it’s still well below its 50-day. Many high-value growth stocks still fell, notably EVs/software, though they closed well off lows.
Friday’s gains mark day one of a new stock rally attempt. That rally attempt holds as long as the major indexes don’t undercut recent intraday lows. The next step is a follow-through day to confirm the new rally attempt. A follow-through day, which shows a strong price gain on one or more of the indexes in higher volume than the prior session, indicates institutions are stepping in to support the new rally. Confirmed rallies don’t always work, but no significant uptrend will take place without one.
Fools Rush In … To Market Rally Attempts
Investors seeing big intraday moves from Friday’s lows may have been tempted to rush in immediately.
Investors should take part early in a new stock market rally, when many of the run’s big leaders will be breaking out. But waiting for a follow-though is important.
If someone treats you badly repeatedly, and then does something nice one time, you shouldn’t immediately believe that person has had a true change of character. You want to see some confirmation.
The same goes for the stock market. You want to let the market trend be your friend. Over the past few weeks, the market trend hasn’t been friendly. One day isn’t enough to change that. Wait for a real character change in the market.
Bottom line: Investors should be defensive, largely or entirely in cash. Any buys should be small and tentative.
Build Your Watch Lists
However, this is an important time to stay engaged and prepare for the next confirmed market rally. Build up your watchlists, focusing heavily on stocks with high relative strength, then look for sound chart patterns and fundamentals. Stocks that hold up well in a correction are likely to be leaders in the next rally.
Which stocks will lead the next market rally? Some old leaders may take part, but others may not. A new crop of leaders may emerge. That seems likely this time amid the big economic shifts underway. Many real economy stocks have been holding up well amid the market correction while richly valued growth names such as Tesla or Zoom take a beating.
There’s nothing wrong with buying back a stock that you previously owned that is breaking out of a bullish base. But don’t just go back to your old winners just because.
As a market correction goes on, you’ll want to keep revising your watchlists as some resilient stocks break down and other names. Hone in on a select group of quality stocks that are setting up.
Meanwhile, keep track of the market via the major indexes and leading stocks. Read The Big Picture every day to stay in sync with the market direction.
You want to be ready when the market confirms a new uptrend. But don’t try to get ahead of it.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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