Market Rally Holds Key Levels, But This Has Been Difficult; Tesla Woes Continue

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




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The stock market rally generally lost ground this past week, but the major indexes found support at significant levels. However, many promising stocks bounced back soon after crossing the buy points. Investors must follow certain rules for the current trading environment, from maintaining light exposure to taking partial profits.

Vertex Pharmaceuticals (VRTX), Charles Schwab (SCHW), Energy Development (EE) and CALX stock are actionable, while Celsius (CELH) set up.

Vertex and CELH stock are on the IBD 50 list. VRTX stock is also on the IBD Big Cap 20. Calix (CALX) was Friday’s IBD Stock Of The Day, with Excelerate Energy and SCHW stocks picked earlier in the week.

A stock that doesn’t hold well is Tesla (TSLA). Tesla stock has fallen this past week, breaking new bear-market lows on Friday.

Dow Jones Futures Today

Dow Jones futures open at 6 pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember that overnight action in the Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


Join IBD’s experts as they analyze stock market rally action on IBD Live


Stock Market Rally

Outside of the Dow, the stock market rally showed moderate losses after last week’s big gains, although there was a less significant pullback from Tuesday’s high to Thursday’s low.

The Dow Jones Industrial Average took a fractional gain in last week’s stock market trading. The S&P 500 index fell 0.7%. The Nasdaq composite fell 1.5%. The small-cap Russell 2000 yielded 1.7%.

The 10-year Treasury yield rose 1 basis point to 3.82% after falling to 3.69% on Wednesday.

US crude oil futures fell 10% last week to $80.08 per barrel. China’s zero-Covid signals and hawkish Fed comments raise demand concerns. Natural gas prices gained 7.2%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 3.55%, with cloud software names taking a heavy hit. VanEck Vectors Semiconductor ETF (SMH) retreated 0.65%, hitting resistance at the 200-day line.

Reflecting the more speculative stocks in the story, the ARK Innovation ETF (ARKK) fell 9.5% last week and the ARK Genomics ETF (ARKG) fell 11.1%. TSLA stock is a major holding in Ark Invest’s ETFs.

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The SPDR S&P Metals & Mining ETF (XME) fell 1.9% last week. The Global X US Infrastructure Development ETF (PAVE) fell 0.1%. The US Global Jets ETF (JETS) fell 2.9%. The SPDR S&P Homebuilders ETF (XHB) retreated 3%. The Energy Select SPDR ETF (XLE) lost 1.6% and the Financial Select SPDR ETF (XLF) fell 1.4%. The Health Care Select Sector SPDR Fund (XLV) rose 0.9%. VRTX is part of the XLV fund.


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Stocks Near Buy Points

VRTX stock rose 3.75% to 314.63 this past week, reclaiming a 306.05 buy point from a flat base, part of a base-on-base formation. The biotech fell intraday on Nov. 11, because medical stocks are under pressure, but reduced losses. The relative strength line is off a recent high but shows steady growth throughout the year. Vertex’s revenue growth remains strong.

SCHW stock popped 2.45% on Friday to 79.81, breaking the downtrend with a handle, offering an early entry. The official buy point is 81.18 from a deep, nine-month cup-with-handle base. However, the handle also formed above the bottom base entry at 77.51.

EE stock rose 2.7% to 27.17 on Friday, also breaking the downtrend with a handle. The April IPO had 28.49 official cup-with-handle buy points, according to MarketSmith analysis.

CALX stock jumped 6.6% to 69.82 on Friday, rebounding strongly from a pullback to the 21-day moving average. That pullback followed an earnings gap after several weeks of tight trading. Calix’s revenue is still declining, but government funding for rural broadband is expected to drive future growth.

Celsius stock rose 3.9% to 96.99 last week, but returned lower on Friday. That can be good news. The energy drink maker has a 118.29 consolidation buy point. A stop here may provide a low entry, although it is too low to be a proper hold. The 50-day line is still sliding for CELH stock but the 10-day and 21-day lines are crossing higher levels.

Tesla Stock

Tesla stock fell more than 8% to 180.19 last week, falling to a new bear market low of 176.55 on Friday. That followed declines of 5.5% and 9.2% in the previous two weeks, continuing a sharp slide since late September.

It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has some demand concerns as production slows and competition heats up. It has slashed prices in China, with more cuts likely to end subsidies by December 31. Meanwhile, the “Twitter circus” remains a concern. CEO Elon Musk’s tumultuous reign in just three weeks risks damaging the Tesla brand.

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Tesla continues to grow at a strong clip, while new US subsidies should boost domestic demand in 2023.

But TSLA stock has continued for years to go sideways or down. So while the EV giant may turn around again, investors should wait for the chart to set up again. That could take a long time.


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Market Rally Analysis

The stock market rally has had a week. After the previous week’s large CPI-fueled surge, the indices initially rose, but then returned from the highs of Tuesday, testing key levels on Thursday. But stocks rebounded modestly from Thursday’s lows.

The market halt is not a big surprise given the sharp recent gains, and with the S&P 500 index approaching its 200-day line. Holding support areas is a positive, while the 21-day line of the Nasdaq is about to cross the 50-day mark. Assuming that the indices hold the levels and eventually move higher, it will be a profitable week for the major indices.

But it was a disappointing week for the top stocks. A decent number of stocks broke or flashed buy signals earlier in the week. But as the indexes retreated, many of the names quickly returned to the bottom of the entries. Some may rebound quickly or set up sooner, but that will likely depend on the market.

Energy stocks had a tough week as crude oil prices fell, although LNG plays in EE stocks were an exception.

Medical stocks, which have been under pressure with defensive growth names, bounced back this week. That includes VRTX stock as well as several biotechs and health insurers.

Networking firms like Calix, some financials like Schwab, as well as building materials and many other sectors are still looking interesting.

Aggressive growth does not have a good week. That includes Tesla stock, cloud software and ARK-type names. CELH stock is an exception.


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Investment Rules For This Market Rally

Investors should always have good trading rules. But the current tough market rally means investors should emphasize light, flexible trading. Here are seven guidelines.

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Keep the Exposure Light: This is not a crazy bull market. Investors should join this rally, but now is not the time to join.

Add Exposure Gradually: Don’t rush exposure. Buying a bunch of stocks on, say, Tuesday, could create a quick loss from the resulting market pullback. Let the market gradually attract you.

Find Early Entries: Breakouts have been difficult in 2022, in part due to poor markets and sector rotation. By the time a stock reaches a traditional buy point, especially from a deep base, it may be due for a pullback. Early entries offer a chance to get into good stocks before the mini run ends.

Get Partial Income: Due to the up-and-down nature of the current uptrend, investors should consider taking partial profits quickly. This will give you the confidence to let the rest of the position go. Know the nature of your assets. Some stocks are more susceptible to big moves, with partial gains especially important.

Know your line in the sand: You should enter a trade knowing where you will exit, either full or scaling out. If the stock advances, you can raise your stops.

Leadership Diversity: While it’s a good idea to focus on a small number of properties, don’t concentrate on a particular sector or theme. Sector rotation has hit the defensive, defensive growth and growth stocks over the past few days. Try to acquire top stocks from different backgrounds.

Preparation: If you want to buy the best stocks, early entries, you need to do your homework. Work with screens to build your watchlists. Focus on specific names that are “ready” or close, but there is also an extensive list of quality stocks that are starting to set up.

Read the Big Picture every day to stay in tune with 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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