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The Dow Jones rose Monday morning, while the S&P 500 was back to break-even and the Nasdaq retreated, but off its worst levels. China power curbs are a new risk for global supply chains, while Treasury yields also extended a recent run.
The stock market rally last week went nowhere — fast. The major indexes tumbled on Monday, but then roared back, with a slew of leading stocks flashing buy signals. Bottom line: The stock market rally is back in a confirmed uptrend.
Dow Jones Today
The Dow Jones rose 0.7%. The S&P 500 was flat. The Nasdaq retreated 0.5%, but well off its worst levels.
The 10-year Treasury yield briefly topped 1.5% for the first time since June, continuing the strong gains in recent days. Higher Treasury yields pressure growth stocks. However, the 10-year yield pared gains to up two basis points to 1.48%.
Durable goods orders rose 1.8% in August, much better than expected. But orders excluding transportation goods were up just 0.2%. But core capital goods orders climbed 0.5%, topping views.
Crude oil prices climbed solidly, with U.S. futures topping $75 a barrel, lifting energy stocks. China and India face coal shortages while Europe is desperately short of natural gas.
Stocks In, Near Buy Areas
Tesla stock broke out past a proper buy point on Friday. Tesla on Friday night released FSD Beta request button, letting Full-Self Driving owners or subscribers opt in, after a seven-day vetting period. On Saturday night, Tesla (TSLA) released FSD Beta 10.1, its latest tweak to the driver-assist software.
As noted in Leaderboard, Tesla had already lifted past a few early entries as well, including 730.
Meanwhile, Microsoft stock, Advanced Micro Devices (AMD), and Google parent Alphabet (GOOGL) have rallied slightly from their 50-day and 10-week lines. AMD stock and Google are potentially actionable here or with a little more strength. Finally, Snapchat parent Snap (SNAP) broke out of a flat base on Friday after already flashing an early entry.
These tech names generally edged lower in Monday’s premarket.
Tesla stock, Microsoft, Google and Snap are on IBD Leaderboard. Microsoft (MSFT) and Google stock are on IBD Long-Term Leaders. Snap stock is on SwingTrader. GOOGL stock and Snap are on the IBD 50. AMD stock and Google are on the IBD Big Cap 20.
The video embedded in this article analyzes a pivotal week for the market rally, while also discussing Tesla, Snap and Costco Wholesale (COST).
Asia Supply Chains
Vietnam plans to ease Covid restrictions in a few days, letting businesses resume production. RH and Nike (NKE) have cited Vietnam shutdowns’ impact. Nike and several other footwear makers tumbled Friday on the Dow component’s Vietnam-fueled sales miss and weak guidance.
But China power curbs are starting to hit big industrial operations in the latest blow to global production and supply chains. The power cuts reportedly are affecting some Apple (AAPL) and Tesla suppliers, along with a variety of chip-related businesses. Apple and several chip stocks fell slightly early Monday.
Facebook says it’s pausing effort to build Instagram Kids amid a public and political backlash. Recent Wall Street Journal articles reported that Facebook execs knew Instagram is harmful to teen girls and did nothing. Facebook refuted the report. FB stock fell slightly Monday morning.
Airline booking trends improved in the latest week, Bank of America said, the latest glimmers of hope for the travel industry. American Airlines (AAL) and other carriers rose solidly.
German elections Sunday showed no clear winner with the center-left SPD just edging past the center-right CDU but both far short of a majority. They’ll both try to form a government, presumably with the Greens and free-market FDP, but coalition talks could take months.
The House plans to hold a series of votes this week. They include votes on the bipartisan infrastructure bill, now scheduled for Thursday, as well as a continuing resolution to keep the government open past Sept. 30. There may also be votes to advance, or at least show the appearance of progress, for a massive budget reconciliation tax-and-spending bill. But it’s not clear what will pass. House Speaker Nancy Pelosi said the reconciliation bill will be below the $3.5 trillion originally proposed, but there’s no agreement yet.
Coronavirus cases worldwide reached 232.72 million. Covid-19 deaths topped 4.76 million.
Coronavirus cases in the U.S. have hit 43.75 million, with deaths above 706,000.
New cases are falling sharply in the U.S. and worldwide, with deaths also declining.
Vietnam is going to ease Covid restrictions and let businesses restart production in a few days as its cases also drop considerably. Vietnam factory shutdowns have hit Nike (NKE) and several other shoemakers, as well as affecting RH (RH) and many other companies.
Stock Market Rally
The stock market rally last week looked like it was buckling on Monday but rebounded bullishly as the week went on.
The Dow Jones Industrial Average rose 0.6% in last week’s stock market trading. The S&P 500 index climbed 0.5%. The Nasdaq composite closed a hair above flat. The small-cap Russell 2000 edged up 0.3%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 2.1%, hitting all-time highs. The Innovator IBD Breakout Opportunities ETF (BOUT) popped 2.5%. The iShares Expanded Tech-Software Sector ETF (IGV) gained 1.3%, with Microsoft and Snap stock key components. The VanEck Vectors Semiconductor ETF (SMH) edged up 0.5%, with AMD stock a notable holding.
SPDR S&P Metals & Mining ETF (XME) fell 2.3%, as the sector has come under heavy pressure. The Global X U.S. Infrastructure Development ETF (PAVE) eked out a 0.35% gain. The U.S. Global Jets ETF (JETS) soared 6.8% in a big week for travel stocks. SPDR S&P Homebuilders ETF (XHB) fell 1.1%. The Energy Select SPDR ETF (XLE) rallied 3.3% and the Financial Select SPDR ETF (XLF) 1.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 3.6% and ARK Genomics ETF (ARKG) plunged 6.2%. Tesla stock is still the No. 1 holding across ARK Invest’s ETFs, despite some recent sales. Snap stock also is an ARK stock.
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Tesla Breaks Out
Tesla stock rose 2.75% on Friday to 774.39, clearing a 764.55 handle buy point in its eight-month consolidation, after previously moving past some aggressive entries. Tesla did have something approaching a shakeout within the handle on a daily chart — including on Monday — though not for long. But on a weekly chart, Tesla doesn’t have any handle, rising for five straight weeks. That’s fine for existing holders, but it’s less than ideal for taking a new position.
Still, it’s hard to quibble at a stock that climbs steadily. The relative strength line for TSLA stock, though still well off all-time highs, is at its best levels since late April. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
Investors also could use 780.89, just above the April peak, as yet another TSLA stock entry.
TSLA stock edged lower early Monday.
Tesla FSD Beta Button
Tesla on Friday night sent out its FSD Beta request button, which will let Full Self-Driving owners and subscription use FSD Beta. But Tesla will vet each driver’s habits for seven days before giving them access.
The upshot is that FSD Beta should get a wider release starting Oct. 1.
Tesla released FSD Beta 10.1 Saturday night after pushing back the release of its latest driver-assist software by 24 hours. FSD Beta is still prone to a lot of mistakes, so that should keep drivers alert. But will complacency set in after a few weeks?
Jennifer Homendy, the new head of the National Transportation Safety Board, has urged Tesla not to go ahead with an FSD Beta wide release. The NTSB has long urged tougher regulatory action vs. Tesla, but such authority rests with the National Highway Traffic Safety Administration. The NHTSA recently began a probe of a series of Tesla Autopilot crashes involving parked emergency vehicles.
A successful rollout of FSD Beta could burnish the Tesla brand and spur more Full Self-Driving adoption. But if FSD Beta results in a flurry of accidents, the fallout could be severe.
Meanwhile, Tesla will release third-quarter deliveries in early October, possibly as soon as next Friday. Tesla should set a record, modestly above 200,000, with the Model Y entering Europe for the first time. Elon Musk said Friday he expects the chip shortage to be over soon. He’s lamented chip supplies many times this year, but it’s unclear if that’s affected production substantially, like it has other automakers.
Chipmaker AMD’s stock rose 1.85% last week to 105.80, bouncing back from Monday. It’s trying to rebound from the 50-day line. It’s also right on a trend line. A little more strength — ideally on volume — would offer an early entry here. AMD stock has consolidated long enough to have a proper base, a double-bottom base with a 114.59 buy point.
AMD fell early Monday but pared losses.
MSFT stock dipped 0.2% to 299.35, but found support again at its 10-week line. It now has a flat base on a weekly chart with a 305.94 buy point. But shares fell slightly Monday.
The RS line for Microsoft stock is just below all-time levels.
Google stock rose 1% to 2,844.30 for the week, after bouncing off support at its 50-day and 10-week lines. Shares also closed just above the 21-day exponential moving average. Investors could buy GOOGL stock at these levels, or use a short trendline break as their target. Google has been trading tight for a few weeks, and is on track to have a flat base after next week if it stays in its current range.
Shares edged lower.
The RS line for GOOGL stock is right at highs.
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Snap stock had a very strong week, surging 11% to 83.09, hitting record highs. After retreating 4% Monday in light volume, Snap rattled off four high-volume gains. On Tuesday and Wednesday, Snap rebounded from the 50-day line and flashed other early entries. On Friday, SNAP cleared the official 80.95 buy point, according to MarketSmith analysis. It’s still in buy range from that flat base, but it’s generally been a good idea to take advantage of early entries.
Snap retreated Monday morning, undercutting the official buy point but above last week’s early entries.
The RS line for Snap stock soared last week to a new high.
Snap’s surge comes as Facebook (FB) warned of headwinds. FB stock fell noticeably for a second straight week.
Market Rally Analysis
The stock market rally started off with a sharp sell-off, with the Nasdaq joining the S&P 500 and Dow Jones below their 50-day lines. But the market roared back, with the Nasdaq, S&P 500 and Russell 2000 rebounding above their 50-day moving averages and breaking downtrends by Thursday’s close.
On Friday, the major indexes initially retreated, with the S&P 500 and Nasdaq 100 testing their 50-day lines, but they came off lows to lose little changed.
Leading stocks have looked even better, with a slew of bullish rebounds, early entries and outright breakouts. The breadth of leadership is impressive as well.
Even though the indexes only closed flat to slightly higher for the week, the overall market looks much stronger than a week ago. The indexes found support at a crucial moment, while leading stocks really outperformed, offering a slew of buying opportunities.
The stock market rally, under pressure as of Sept. 17, shifted back into a confirmed uptrend on Sept. 23.
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What To Do Now
This week shows the importance of being flexible. On Monday, most investors probably should have been selling — ideally they were scaling back in the prior two weeks, taking some partial profits. After Monday, the risks were high that the market was going to fall into a correction. As it turned out, the market rebounded. By Thursday at least, investors should have been taking advantage of the large number of buying opportunities. Many are still actionable, while a number of stocks are on the cusp.
This weekend you should go over your portfolio. Whether it’s old positions or new buys, how are they performing? Are you in sync with the market and leading stocks and sectors? Meanwhile, run those screens thoroughly. After the past week, your watchlists need to be refreshed. Cast a wide net to spot possible buys from a wide range of industries.
If the major indexes and leading stocks continue to perform well, you can add to your exposure. However, if the market reverses lower in the coming days, be ready to adapt.
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.
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