Microsoft exemplified the ongoing leadership in the stock market today, but weight-loss-related industry leaders continued to bolster the confirmed uptrend. Eli Lilly sported a new buy point off its 50-day and 10-week moving averages, while the rally continued to show more evidence of broadening out.
Microsoft, recently getting a favorable court ruling on its bid to acquire Activision Blizzard, jumped as much as 6% to a new all-time high of 366.78. MSFT closed the day up 4% as volume soared 143% above its 50-day average. Microsoft shares are up 32% since clearing a narrow flat base in March with a 276.76 buy point.
The 5% buy zone went up to 290.60, so MSFT is extended for now. However, Microsoft is also making its second rebound off the 10-week moving average (see the red line on the weekly chart below) near 332 since the mid-March breakout. The first and second pullbacks to the 10-week line can offer a follow-on entry.
Microsoft Still Leads The Stock Market
In a flat base, the decline from the base's high to low should not exceed 15%. In the case of MSFT, the correction was limited to 11%.
Microsoft also rallied on reports that it's going to offer its generative AI-enhanced Microsoft 365 Copilot software to business customers at $30 per user per month. This pricing exceeded some sell-side equity research analysts' expectations. Barron's reported that Bernstein analyst Mark Moerdler calculated the move as amounting to a price hike of 53% to 240%, depending on the version of Microsoft 365 employed.
According to IBD Stock Checkup, MSFT garners a 97 Composite Rating, second only to group peer Adobe. The Composite Rating synthesizes fundamental, technical and fund ownership metrics into a single score of 1 to 99. In general, top growth stocks show a Composite of 90 or higher at the start of their big runs. New IPOs, which have a shorter track record of profits, may break out to new highs while showing a Composite Rating of 80 or higher.
Meanwhile, keep an eye on transport stocks, which as a whole are body-slamming the humdrum performance of the Dow Jones Industrial Average.
While the Dow industrials rose a respectable 1% by day's end, doing a touch better than a nearly 0.8% lift by the Nasdaq composite at 4 p.m. ET, the 30-stock blue chip index is still a laggard in the 2023 stock market recovery. The Dow Jones' 5.3% year-to-date advance sharply lags a 36.7% move higher by the Nasdaq.
Outside the stock market, crude oil futures jumped 2.1% on the Nymex to $75.66 a barrel. Light sweet crude oil still remains well off its March 2022 peak of $130.50. Gold futures strengthened again, rising 1.3% to $1,981.50 an ounce.
Please check out Tuesday's IBD Live episode for a discussion on a dozen gold mining plays and which ones are leading the pack.
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Bank Stocks Rebound Further
Bank and financial stocks are definitely helping the cause. As more banks report earnings this week, SPDR S&P Regional Banking ETF barreled 4.1% higher to a four-month high. The exchange traded fund is cracking through upside resistance near 44-45. The action justifies an aggressive entry near those price levels.
Charles Schwab, which is not a Dow industrials component, jacked up 12% in rapid turnover to a four-month high.
At the session's high of 66.95, SCHW has a chance to retake its falling 200-day moving average. That would indicate the tide may be turning from a bearish one to bullish.
Schwab reported a 23% drop in second-quarter profit, but revenue grew 23% to $6.47 billion. The San Francisco-based firm's gross margin fell to 54.7% vs. 67.8% in the fourth quarter of 2022 and 63.5% in Q1 of this year. Schwab stock has rebounded sharply since the double fiasco of superregional lenders First Republic Bank and Signature Bank of New York, both of which went belly up in March.
In the meantime, the S&P 500 rallied just above 0.7% to 4554.98 on Tuesday. That trailed a 1.3% rise by the Russell 2000. The small-cap gauge, closing Tuesday at 1976, now holds a 12.2% gain since Jan. 1.
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Stock Market Leader In The Big Pharma Space
Volume was tracking 5% higher vs. the same time Monday on the Nasdaq and 16% faster on the NYSE, according to early data on MarketSmith. These data points pose as bullish signs that institutional investors — from pension plans and college endowment funds to banks, insurers and mutual funds — are deploying more capital into equities.
A stock market leader this year, Eli Lilly rose 0.8% in dull turnover on Tuesday. Yet the megacap pharmaceutical stock ($428 billion market value, 949 million shares outstanding) is finding support at its rising 50-day moving average near 443. This action follows a good breakout from a base in April and marks a follow-on entry point.
Notice on the daily chart how LLY has already posted big gains for astute chart readers who bought when it broke out of a cup without a handle and its 375.25 proper buy point. Shares advanced 25% from that entry. This means investors who bought correctly could have also decided to pocket some gains on the 20%-25% profit rule.
Taking some profits on the way up frees up cash for new investments. It also helps an individual investor sidestep that inevitable correction following a strong short-term move out of an IBD-style chart pattern.
Lilly, which has shown prowess in treatments across a range of health conditions, is gaining more demand with its new success in both the dementia and obesity areas of health care.
Please check out this new IBD Stock Of The Day story on the megacap ethical drug giant. At 450.93, LLY is trading less than 2% above its current 50-day line price level.
A Good Harbinger For The Economy?
Elsewhere in the stock market, the Dow Jones transport average has shown excellent action in recent months. Its 2% gain on Tuesday outshined the Dow industrials' move.
Plus, since Jan. 1, the Dow transports have claimed a 20.7% gain vs. a 5.3% rise for the Dow industrials.
On Tuesday's IBD Live show, panelists paid attention to steady-growing companies in the less-than-truckload subsector of the trucking industry. In this area, small-cap trucking play ArcBest (84 Composite Rating, 79 Relative Strength Rating) ran ahead 4.8% Tuesday in volume running 254% above its 50-day average. Some holders, however, sold heavily into the advance; at one point, ARCB had achieved an 8.9% lift.
ARCB also is trying to storm past a cup with handle that shows a 101.49 buy point.
ArcBest's truck transport group mate Old Dominion Freight Line marked a fourth straight gain. Shares gapped up at the open and at one point rose more than 7% to a new high of 411.57. Volume was heavy.
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Notice on a daily chart how ODFL has made nifty progress since clearing both a trendline within its base near 335 as well as an early buy point at 356.70.
Therefore, this stock market leader is extended from a proper buy zone.
However, watch to see if Old Dominion backtracks in mild volume near the top of its latest base. The stock's daily chart action from June 30 through July 14 simulated a handle on the cuplike structure. This creates an alternate entry near 377.30.
A handle poses as the final shakeout of uncommitted, desperate holders, sending their shares into sturdier hands before a potential breakout.
A pullback to within a 5% range from 377.30 may offer a second chance to buy shares. Earnings are due July 26.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
