Buyers returned to the stock market today after encouraging data on the U.S. job market hinted that wage inflation could in fact cool further. Microsoft slightly underperformed the S&P 500, but shares are still forming a decent base.
MSFT stock has been working on a new base since topping at 366.78 last month and reversing for losses in the second half of that month. The cloud computing giant is still far from pinpointing a new buy point.
Microsoft stock, up nearly 37% for the year, still holds a big cushion above its rising 200-day moving average.
Plus, the 15% pullback seen in Microsoft stock from head to toe within the current base-building effort is mild and bullish. It indicates that institutional selling has been limited so far.
PDD Breaks Out
Meanwhile, top China e-commerce firm PDD Holdings thrashed the short sellers with a 15% gain amid hopes that new government measures to stimulate the world's No. 2 economy may help jump-start consumer activity.
PDD flashed a buy signal with the strong gains in heavy volume. The large cap moved past a 92.79 buy point within its large and deep eight-month cup with handle.
The 5% buy zone from 92.79 goes up to 97.43. Thus, PDD stock remains in the proper buy zone.
PDD holds a decent 90 Composite Rating on a scale of 1 to 99. This indicates stock market leadership. Generally, excellent growth stocks show a Composite score of 95 or higher at the start of big price runs.
The company announced a 28% jump in second-quarter earnings to $1.44 a share as revenue climbed 54% to $7.21 billion.
The 54% top-line increase marked a second straight quarter of revenue growth acceleration (from 35% growth in Q4 2022 to 46% in Q1 of this year).
The IBD Composite Rating fuses fundamental, stock price performance and fund ownership metrics into a single easy-to-use score. Keep in mind that it serves only as a stock selection tool, not a market-timing tool.
Wall Street sees PDD's earnings dipping 7% this year to $3.69 a share and rebounding 25% to $4.62 in 2024. The company lost money from 2016 to 2020, then turned a profit of $1.48 in 2021.
Stock Market Today
The stock market enjoyed a broad rally, led by megacap techs that hoisted the Nasdaq composite 1.7% higher. Volume ran sharply higher vs. the same time on Monday.
Also on Tuesday, the S&P 500 gained almost 1.5%. The gains follow a 0.8% rebound last week. Small caps excelled too. The Russell 2000 advanced 1.4% while the Dow Jones Industrial Average lagged with a nearly 0.9% rise.
At least six of the 30 Dow Jones Industrial Average members rallied 3 points or more. Those included Goldman Sachs, Caterpillar, Microsoft and Amgen.
Stock Market Forecast For Next 6 Months: What Investing Pros Are Watching Closely
Admittedly, breakouts remain sparse amid the stock market landscape.
The Innovator Trust IBD Breakout ETF is trying to halt a four-week losing streak. The exchange traded fund gained 0.8%, lagging the large-cap and small-cap equity indexes.
Notice on a weekly chart how BOUT still remains below its vital 10-week moving average.
The sharp drop in job openings reflects the progress made by the Federal Reserve to dampen inflation, without smothering the economy, with 525 basis points' worth of interest-rate hikes since March last year. Specifically, total job openings dropped in July to 8.827 million, down from a downward-revised figure of 9.165 million openings in June and way below the Econoday consensus forecast of 9.559 million jobs available.
More critical economic data lies just around the corner.
Wednesday, market participants will eye the ADP private sector jobs report, followed by PCE inflation numbers on Thursday. Economists polled by Econoday see the core PCE index going up 4.2% in July, up from a 4.1% rise in June. Both figures are still stubbornly above the Federal Reserve's long-term target rate of 2%. Meanwhile, personal income is expected to rise 0.3% month on month, and personal consumption expenditures up 0.6%.
Fed Funds Rate Watch
The current fed funds rate charged on overnight loans to large banks sits at a range of 5.25% to 5.5%.
Early on Tuesday, panelists on the daily IBD Live show pointed out that the probability of another quarter-point hike in the overnight fed funds rate shot to more than 50%, according to recent CME FedWatch data surveying bond traders. And some traders forecast a small chance the U.S. central bank would raise rates by 50 basis points, or half a point, to a target range of 5.75% to 6% at the November meeting.
The yield on the benchmark U.S. Treasury 10-year bond dropped 8 basis points to 4.12%. Earlier in the month, the 10-year yield lifted to as high as 4.36%, the highest level in at least 15 years.
Crude oil futures for the light sweet category rallied 1.4% on the Nymex. Copper gained 1.2% while gold moved up 0.9% to $1,965 an ounce.
New Stock Market Leader In Tech?
Elsewhere, ServiceNow jumped nearly 2% and is handling a test of support at the 10-week moving average. The stock is also forming a flat base.
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NOW stock owns a pleasant 91 Relative Strength Rating on a scale of 1 to 99.
ServiceNow is trading less than 6% below a potential buy point of 614.36 within the six-week flat base. The 13% decline from the base's high to low falls within the ideal range for this key chart pattern.
However, the stock has made solid progress since it cleared a three-month cup with handle at 485.58 in April. So, the stock's latest test of the 10-week moving average in recent weeks also creates a possible follow-on buy opportunity. The 10-week line is currently at 564.
Earnings at the digital transformation expert for large and medium-sized enterprises have surged from 70 cents a share in 2016 to $7.59 in 2022.
Analysts see the bottom line cooling off 25% this year to $5.70 a share, then rebounding 29% in 2024 to $7.33. Sales have jumped 20% to 31% vs. year-ago levels for at least eight quarters in a row.
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