Dow Jones futures edged lower Monday morning, while S&P 500 futures edged higher and Nasdaq futures rose slightly, with investors looking ahead to this week’s Fed meeting. The stock market rally continued to improve last week, with the S&P 500 at a record high and more breakouts continuing.
While not a rip-roaring bull market like 2020, investors can take advantage of the current uptrend. But to achieve big market gains over time, you have to minimize losses.
Fed Meeting In Focus
The Federal Reserve meets on Tuesday and Wednesday. Investors will look for any hints that policymakers are starting to talk about tapering bond purchases. But that may not happen until the July or September Fed meetings, or possibly the Jackson Hole monetary symposium in late August. Any actual scaling back of asset purchases likely wouldn’t take place for several months, with Fed rate hikes not until 2023 at the earlier.
Bond traders, after being spooked by rising prices earlier this year, have come around to the Fed argument that the recent spike in inflation is temporary.
The 10-year Treasury yield tumbled 10 basis points to 1.46% last week, hitting a fresh three-month low.
Dow Jones Futures Today
Dow Jones futures were slightly below fair value. S&P 500 futures edged higher and Nasdaq 100 futures rose 0.3%.
Bitcoin is trading above $39,000, near the high of its recent trading range after tumbling from record highs in mid-April. The Bitcoin price jumped Sunday after Elon Musk said Tesla (TSLA) only sold about 10% of its Bitcoin, presumably near the end of the first quarter. He said “Tesla will resume allowing Bitcoin transactions” when the cryptocurrency’s green energy use improves.
Coronavirus cases worldwide reached 176.77 million. Covid-19 deaths topped 3.82 million.
Coronavirus cases in the U.S. have hit 34.32 million, with deaths above 615,000.
Novavax (NVAX) reported Monday that its experimental Covid-19 vaccine is 90% effective, including 100% effective vs. moderate to severe disease. The vaccine was effective against several coronavirus variants. That’s based on phase 3 trials in the U.S. and Mexico. Novavax, which already completed a phase 3 trial in the U.K., says it’ll now seek FDA emergency approval in the third quarter. Novavax stock jumped before the open.
Stock Market Rally
The stock market rally showed healthy action last week, even with the Dow Jones retreating modestly.
The Dow Jones Industrial Average dipped 0.8% in last week’s stock market trading, with Caterpillar (CAT) tumbling and some other blue chips with modest losses. The S&P 500 index edged up 0.4%. The Nasdaq composite advanced 1.85% and the Russell 2000 1.9%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.85%, with Microsoft stock major component. The VanEck Vectors Semiconductor ETF (SMH) closed flat.
SPDR S&P Metals & Mining ETF (XME) rose 0.9% and Global X U.S. Infrastructure Development ETF (PAVE) retreated 1.1%. U.S. Global Jets ETF (JETS) dipped 0.2%. SPDR S&P Homebuilders ETF (XHB) slumped 1.4%, but the action in many actual homebuilder stocks was far worse.
Apple Vs. Microsoft
Apple and Microsoft boast market caps of $2.13 trillion and $1.94 trillion, respectively. Both have at least two quarters of accelerating earnings and revenue growth.
And both have new bases. Apple has a flat base with a 137.17 buy point, according to MarketSmith analysis. Microsoft stock has a flat or cup base with a 263.29 buy point, really a base-on-base formation.
Microsoft stock is moving toward its buy point somewhat while Apple is still pinned below the 50-day line. But what really separates them is the relative strength line. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
The RS line for MSFT stock isn’t great, still a ways off last year’s record highs. But it wouldn’t take a big Microsoft advance to get its RS line above its consolidation high and then its 2021 high.
The RS line for Apple stock, meanwhile, is right at 10-month lows. It’s well below the April consolidation highs and even further below January’s best levels, let alone last year’s all-time highs.
Microsoft may not a huge winner but could be a solid performer going forward, balancing out some more volatile names.. Last week MSFT stock rose 2.8% to 257.89, rebounding from its 10-week line. Investors interested in Microsoft stock as a Long-Term Leader could take a position now.
Apple stock needs more work before investors should consider it seriously.
Japan will open an antitrust probe vs. Apple and Google over their mobile operating system dominance, Nikkei reported. U.S. tech giants already face investigations in America and Europe.
Google, Novocure, Bio-Techne
Neither Apple nor Microsoft stock look as strong as fellow trillion-dollar tech titan Google.
Google stock, Novocure and Bio-Techne are all just below new highs. All three stocks not only have strong RS lines, they have RS lines at new highs while still in bases. They makes them Blue Dot stocks, an especially bullish mark.
Google stock climbed 1.5% last week, to 2,430.20, the fourth straight weekly advance. The flat-base entry is 2,431.48.
NVCR stock popped 5.1% last week to 216.28. It’s in a cup base next to a deeper consolidation. The buy point for Novocure stock s 220.58.
Bio-Techne stock rose 4.6% to 443.94 last week. TECH stock has a 444.93 buy point from a flat base as part of a base-on-base pattern.
Market Rally Analysis
The S&P 500 didn’t rise much last week, but did nudge up to a record high. The Russell 2000 and Nasdaq closed in on all-time levels as well. It was the third straight weekly gain for the S&P and Russell 2000 and the fourth for Nasdaq. The Dow Jones retreated slightly, but is finding support at its 21-day and 10-week lines, not far from new highs.
Crucially, leading stocks are acting well. Breakouts and other buying opportunities continue to appear and are generally working
Software is definitely back in favor, along with tech generally. So are a number of medicals. Steel and some mining stocks are consolidating bullishly.
However, homebuilders have been hit hard. Financials are struggling a bit.
Don’t assume that the choppy market rally and sector rotation is over. Perhaps tech and growth names will have an extended run, but perhaps not.
So while investors likely are expanding their tech holdings in the past few weeks, don’t get too concentrated.
How To Be A Big Winner
Perhaps the key to be a big winner in the stock market is to be a small loser.
Hopefully, you’ll have more winning trades than losers. But you can have strong performance with an even number of winning and losing trades. Your yearly winners might include a number of small-to-modest advances, some sharp increases and perhaps one or two huge gains.
Of course, you can and should study to help find the truly huge winners, as well as developing trading strategies to capture more of the gains for your stocks’ runs.
But the best thing you can do is cut your losses short. If your average winning stock is up, say, 25%, while your average loss is 4%-5%, generating a hefty return over the course of a year or a decade is straight forward.
Cutting losses short requires decisive action, especially when the market goes south. In those times, your stocks can fall fast, especially highly valued names. So stay alert and be decisive to avoid small winners turning into losses, or small losses becoming hefty declines.
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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