Dow Jones futures rose slightly Monday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally started off strong last week, but pared gains considerably amid big earnings moves and soaring Treasury yields.
Investors need patience and discipline right now, keeping exposure light while waiting to see if the confirmed market rally powers higher or breaks down.
Apple, Google parent Alphabet, Qualcomm and Microsoft are tech giants that are holding up well, setting up potential entries. All of these stocks have already reported strong quarterly results, and have relatively modest price-earnings ratios.
Meanwhile, Tesla stock has more work to do to get into position, but is holding up better than most highly valued growth plays. Tesla also has already reported earnings.
Amazon, Nike Mulling Peloton Bid?
Peloton Worldwide skyrocketed late Friday on a Wall Street Journal report that Amazon.com is mulling the connected bike and treadmill maker for a potential takeover. Nike also could be a suitor for Peloton, The Financial Times reported Saturday. But both reports stressed that no talks have been underway.
Wedbush's Dan Ives speculated that Peloton would make a lot of sense for Apple.
Blackwells Capital has been pushing the board to fire CEO John Foley and explore a Peloton sale.
Amazon's logistics could help address Peloton's supply-chain issues. Peloton's subscription service potentially could be folded into Amazon Prime. Nike also would offer global logistics and reach, while Peloton could add fitness equipment and subscription revenue to Nike's athletic apparel empire.
In premarket trade Monday, PTON stock surged 34%.
A massive coronavirus winner, PTON stock peaked at 171.09 in early 2021 and crashed to a record-low 22.81 on Jan. 28. Shares rose 1.4% to 24.60 at Friday's close. AMZN stock, up 13.5% Friday on earnings, was little changed before Monday's open, along with Nike.
In other news, Spirit Airlines and Frontier Airlines agreed to merge. SAVE stock owners will receive 1.9126 ULCC shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83, a 19% premium.
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Tesla and Microsoft stock are on IBD Leaderboard. Microsoft and Google stock are on IBD Long-Term Leaders. Google and Tesla stock are on the IBD 50. QCOM stock is on the Big Cap 20.
The video embedded in this article analyzed the volatile market rally and discussed Apple stock, AMZN stock and UnitedHealth.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value. S&P 500 futures advanced 0.3% and Nasdaq 100 futures climbed 0.5%.
It's hard to get too excited about modest overnight moves, up or down, given the big intraday and daily swings over the past few weeks.
The 10-year Treasury yield fell 1 basis point to 1.92%. Crude oil futures declined 1%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally had solid-to-strong gains last week, despite some big intraday swings.
The Dow Jones Industrial Average rose 1.1% in last week's stock market trading. The S&P 500 index advanced 1.65%. The Nasdaq composite popped 2.5%. The small-cap Russell 2000 climbed 1.6%.
The 10-year Treasury yield jumped 15 basis points to a two-year high of 1.93%, with 10 basis points coming Friday on the strong jobs report. The two-year Treasury yield continues to close the gap on the 10-year yield, squeezing banks' traditional lending.
Crude oil prices surged yet again, up more than 6% last week to $92.23 a barrel, the highest since 2014.
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ETF Performance
Among the best ETFs, the Innovator IBD 50 ETF rose 1.4% last week, while the Innovator IBD Breakout Opportunities ETF leapt 5.65%. The iShares Expanded Tech-Software Sector ETF climbed 2.6%. MSFT stock is a top IGV holding. The VanEck Vectors Semiconductor ETF jumped 4.1%. QCOM stock is a notable SMH component.
SPDR S&P Metals & Mining ETF ran up 6.9% last week. The Global X U.S. Infrastructure Development ETF eked out a 0.4% gain. U.S. Global Jets ETF ascended 2.9%. SPDR S&P Homebuilders ETF sank 1.5%. The Energy Select SPDR ETF jumped 4.9% and the Financial Select SPDR ETF climbed 3.6%. The Health Care Select Sector SPDR Fund advanced 1.6%
Reflecting more-speculative story stocks, ARK Innovation ETF rebounded 5.6% last week and ARK Genomics ETF 5.3%. Tesla stock is the top holding across ARK Invest's ETFs.
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Apple Stock
Apple stock tested support at its 50-day moving average on Friday, closing up 1.2% to 172.39 for the week. AAPL stock needs another week for a proper base to form with a likely buy point of 183.04. Investors could use Thursday's high of 176.24 as an early entry.
The relative strength line has been moving up solidly since mid-November and is at record highs now while Apple stock is still basing. That's especially bullish. The RS line, the blue line in the charts provided, tracks a stock's performance vs. the S&P 500 index.
Apple earnings rose 25% in the holiday first quarter, while revenue grew 11%, both topping views. Executives also sounded upbeat about growth.
Apple stock has a P-E ratio of 29, a reasonable valuation for a tech stock. Of course, analysts expect Apple earnings per share to rise 8% in fiscal 2022 and 2023.
Google Stock
Google stock jumped 7.5% last week to 2,865.86, moving above its 200-day and 50-day moving averages. Late Tuesday, the FANG giant reported strong earnings and set plans for a 20-to-1 stock split. On Wednesday, shares briefly popped to a new high before slightly paring gains. GOOGL stock fell back on Thursday, then found support at its 50-day line Friday. Shares could be forming a high-ish handle.
The RS line for GOOGL stock is at a new high, according to MarketSmith analysis. The P-E ratio is 29, like Apple stock, but Google is expected to deliver 17% growth in 2022.
Investors could use the traditional 3019.43 consolidation buy point, or 3031.03, just above Wednesday's record intraday high.
Qualcomm Stock
QCOM stock rose 7.6% to 179.47 last week, nearly hitting a new high on Thursday following strong Qualcomm earnings and guidance. But shares reversed lower that day amid the Facebook-led market sell-off. Shares ended the week just one cent below their 50-day line, but did finish above their 10-week line.
QCOM stock has been consolidating in a messy fashion since mid-November and could have a proper base after next week. But the RS line for Qualcomm stock has already been hitting highs.
The P-E ratio is just 19, lower than the S&P 500 average. Analysts see Qualcomm earnings per share up 36% in fiscal 2022.
Microsoft Stock
MSFT stock dipped 0.75% to 305.94 last week, trading around its 21-day line between its 50-day and 200-day moving averages. Shares are well off the official 349.77 buy point, but the RS line is right at highs. A move above Wednesday's high of 315.12 could offer an entry into Microsoft stock as a Long-Term Leader.
The P-E ratio is 34, with analysts expecting 18% EPS growth in the June-ended fiscal 2022 and 16% in 2023.
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Tesla Stock
Tesla stock shot up 9.1% to 923.32 last week, closing high in the weekly range. But it was an inside week vs. the prior week, when TSLA stock tumbled 10% but found support at its 200-day line.
Shares are coming up from a steep downtrend, but are still well below their declining 50-day line. For now, Tesla stock has an official buy point of 1,243.59, with a less-steep trendline offering a buy point slightly below 1,200.
The RS line for TSLA stock is definitely off highs, but hasn't broken down. Not many stocks with triple-digit P-E ratios are holding above their 200-day lines. That goes for most EV stocks as well. Li Auto reclaimed that key level on Friday, while BYD is moving back toward that level.
Market Rally Analysis
The stock market rally had an unusual week, staging a follow-through day on Monday, then moving higher through midweek before tumbling Thursday. That raised some concerns about the rally, though volume fell vs. the prior session. Stocks looked shaky Friday morning as Treasury yields spiked to two-year highs. But Amazon and other techs ultimately propelled solid gains to end the week.
The Dow Jones and S&P 500 found support around their 200-day lines. The Nasdaq and Russell 2000 are still well below that key level, though the former did regain the 14,000 level. All closed roughly in the middle of their weekly ranges.
Earnings drove a lot of the market moves last week, with Facebook parent Meta Platforms crashing Thursday. But Google stock and Amazon earnings helped buoy markets.
Not all confirmed market rallies work. The current uptrend is suspect for a lot of reasons, the biggest of which is that there haven't been many great stocks setting up and flashing buy signals. Overall market breadth remains poor.
Energy stocks are strong, thanks to surging oil prices. Fertilizer stocks are leading while some financials and medical names such as UnitedHealth are shaping up. But growth stocks in particular have struggled, which is why Apple stock, Google, Qualcomm and Microsoft stand out.
It wouldn't be terrible if the major indexes moved sideways, perhaps trading roughly within the range of Wednesday's intraday high and Friday's lows. That would offer more time for stocks such as Tesla to repair charts, rather than try to race back to new highs. Stronger stocks could flex relative strength as they moved into position.
Ultimately, investors will want to see the major indexes get above Wednesday's highs and beyond, with the Nasdaq moving back over its 200-day and 50-day lines. On the downside, a significant move lower, undercutting Monday's follow-through-day lows, would be a very negative signal.
But the market rally is going to do what it's going to do.
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What To Do Now
Investors have to recognize what kind of market they are in. Yes, it's a confirmed market rally, but there are reasons to be cautious.
It's not a great time to be adding significant exposure right now, until the market offers a clear signal. Beaten-down stocks have had their initial rebound, while not many stocks are flashing buy signals.
Patience and discipline are key for long-term investing success.
Being an active investor doesn't mean you have to be actively trading at all times. If you get impatient, look back at your 2021 trades. The vast majority of your winnings were likely in the clear-cut uptrends, while you lost money in choppy markets or worse.
Continue building your watchlists. The past couple of weeks likely shuffled the decks. When the market rally shows clear strength, you want to be ready to take advantage.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
