Dow Jones Hits 7-Month High, Stocks Near Buy Points; Why you should be wary

Dow Jones futures open Sunday evening, along with S&P 500 futures and Nasdaq futures.




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The stock market rally had solid gains in the holiday-shortened week. The Dow Jones hit a seven-month high. But the S&P 500 is reaching towards its 200-day moving average, a key resistance area. Several economic reports are looming next week, including November’s jobs report. These will be key to Fed rate expectations.

Therefore, investors may want to be wary of adding a lot of exposure in the very short term.

Key Earnings

Data storage company Pure archiving (PSTG), Chinese e-commerce giant Pinduoduo (PDD), Dollar General (GM) e Ulta beauty (ULTA) reports earnings next week. PDD, Dollar General, Pure Storage and Ulta Beauty stocks are also near buy points.

Salesforce.com (CRM) and Snowflake (SNOW) headlines a series of software earnings reports, with key insights into the entire industry and IT spending outlook. Snowflake is expected to report its first quarterly earnings. But SNOW stock and most of these other software plays are well above the highs.

Even megacaps are still struggling. Tesla (TSLA) has rebounded this week, but from bear market lows. Amazon.com (AMZN) is still below most of its moving averages. Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA) and parent of Google Alphabet (GOOGL) they are all above their 50 day lines, but below their 200 day lines.

The video embedded in this article looked at the market rally over the past week and analyzed Dexcom (DXCM), Avis Budget Group (CAR) and PSTG shares.

Dow Jones Futures today

Dow Jones futures open Sunday at 6 p.m. ET, 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 session of the stock market.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market rebound

The stock market rally had solid gains during Thanksgiving week.

The Dow Jones Industrial Average rose 1.7% in stock trading last week. The S&P 500 index rose 1.5%. The Nasdaq composite advanced 0.8%. The small-cap Russell 2000 was up 1%.

The yield on the 10-year Treasury fell 11 basis points to 3.71%.

U.S. crude oil futures tumbled nearly 2% to $78.31 a barrel last week.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) was up 1.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 2%. The iShares Expanded Tech-Software Sector (IGV) ETF rose 1.8%, with Microsoft and CRM the two largest holdings. VanEck Vector Semiconductor (SMH) ETF rose 0.8%, with NVDA stock as the largest constituent.

Reflecting the stock’s more speculative stories, ARK Innovation ETF (ARKK) was down 1.5% last week and ARK Genomics ETF (ARKG) was down 1.9%. Tesla shares are a major holding in Ark Invest ETFs.

The SPDR S&P Metals & Mining (XME) ETF jumped 4% last week, just short of a potential entry. The Global X US Infrastructure Development ETF (PAVE) rose 1.8% to a seven-month high. The US Global Jets ETF (JETS) is up 2.3% in a good week for travel games. SPDR S&P Homebuilders ETF (XHB) was up 1.85%. The Energy Select SPDR ETF (XLE) was up 0.2%, close to all-time highs. The Financial Select SPDR ETF (XLF) gained 2% and the Health Care Select Sector SPDR Fund (XLV) gained 1.8%, both to bests in seven months.


Five top Chinese stocks to watch now


Apple shares, Megacaps

Shares of Apple fell 2.15% last week to 148.04, with most of it on Friday as China’s Covid lockdowns impact iPhone production. AAPL stock found support at the 50 day line, but the 200 day line was a point of resistance.

Microsoft stock rose 2.6% last week to 247.49, moving further above its 50-day line. But the stock is still well below the 200 day mark. Nvidia stock jumped 5.6%, well above its 50-day line, but it still has work to do to recover its 200-day line. Google shares are up 0.1%, just over 50 days.

AMZN stock fell 0.7%, even below its 21-day line, still near bear market lows.

Tesla stock rebounded from Wednesday’s bear market low of 166.19 to finish the week up 1.5% to 182.56. But it’s still well below the 21-day, 50-day and especially the 200-day lines.

Actions near buy points with earnings due

Pinduoduo earnings are due before opening on Monday. Pinduoduo stock fell 6.4% to 65.69, but after a huge rally that lasted several weeks. PDD stock has a buy point of 72.84 cups with a handle and is currently finding support near its rapidly rising 21-day line. But the base is 47% deep. And the risks for China are high, with new lockdowns compressing an already struggling economy.

Pure Storage earnings are due late Wednesday. PSTG stock fell 0.9% to 30.46 last week, continuing to hold its 21-day line. It has a cup-and-handle basis with a buy point of 32.07, although investors could use 32.55 as a new handle entry after a short breakout attempt has failed. Pure Storage stock now has a tight five-week pattern with a buy point of 32.55. Meanwhile, NetApp’s earnings are Tuesday night, with the storage giant back above its 200-day line.

Overall dollar gains are due early Thursday. DG stock fell 0.2% to 257.30 last week, holding up well to rival Dollar tree (DLTR) collapsed on weak guidance. Investors could still use a base buy point of 261.69 cups, according to MarketSmith’s analysis.

Ulta Beauty reports late Thursday. ULTA stock rose 1.8% to 448.46 last week. The stock is extended from a cup-with-a-handle buy point of 426.99 on a daily chart. On a weekly chart, Ulta Beauty hovers around a base buy point of 451.40. But the recent gains came on light volume, as ULTA stock was extended from its 50-day line.


These 5 stocks to watch are close to buying points


Analysis of market rallies

The stock market rally had a solid week, continuing to bounce off key support levels. The Dow Jones passed its Aug. 16 peak on Friday to hit a seven-month high. The Russell 2000 just made it back to its 200-day line on Friday.

The laggard Nasdaq bounced off its 21-day line during the week, but is still some distance from its 200-day mark. With Apple, Microsoft, Tesla stock and software makers so far off the highs, it’s really no surprise.

The S&P 500 also advanced, closing above the 4,000 level. It is now within 1% of its 200-day moving average. On Aug. 16, the S&P 500 got within one point of that key level, but then sold off for nearly two months. A decisive move above the 200-day line, which coincides with a downtrend line, would signal that the current uptrend is more than just a bear market rally.

But key economic reports loom. The October JOLTS report will show job opportunities on Wednesday, with Fed Chief Jerome Powell speaking later in the day. The PCE price index, the Fed’s preferred inflation gauge, will be released on Thursday, along with jobless claims and the ISM manufacturing index. The November jobs report is due on Friday.

Moderate inflation and jobs data will bolster expectations for a Fed rate hike 50 basis points lower on Dec. 14 and perhaps signal a further slowdown in the pace of rate hikes early next year. The hot numbers could once again capsize hopes for a Fed pivot.

A positive market reaction to economic data could trigger a flurry of buy signals. Many stocks from a variety of sectors are being set up.


Time The Market with IBD’s ETF Market Strategy


what to do now

The stock market rally is in good shape. Investors should take advantage of this upward trend with modest exposure.

In the very short term, investors may want to be cautious about making new purchases. The market rally faces a big technical test with inflation and jobs reports likely to play a key role in how it plays out. Covid lockdowns in China are another big wild card.

But it’s definitely time to prepare for new purchases. Build those checklists, making sure you find potential buys from a wide variety of industries. So stay busy with the market action. Be prepared to make new purchases or downsize depending on market action.

Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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