Dow Jones futures fell modestly Sunday night, along with S&P 500 futures and Nasdaq futures, amid hedge liquidation concerns
The bifurcated stock market rally had a wild week, but finished on a strong note. It remains a challenging environment, with enough positive action to entice investors but volatile enough to toss them out. With the indexes strengthening late last week and several quality names breaking out or flashing bullish signals from a variety of sectors, the overall stock market rally appeared to be improving, tentatively.
The chip-equipment group is one of the hottest right now, with ASML (ASML), Lam Research (LRCX), Entegris (ENTG), KLA Corp. (KLAC) and MKS Instruments (MKSI) are actionable right now. The already-strong group got a big boost last week when Intel (INTC) announced it would spend $20 billion on two new chip plants in Arizona. Intel stock spiked to a 20-year high, plunged to its 10-week line before rebounding for a modest gain.
The biggest unknown is the stock market rally. If it continues to move higher, then ASML stock and other chip-gear plays stand a good chance of working. But if the stock market resumes choppy action or steady selling, expect more difficult times. This is why it’s so important to be in a healthy, sustained market rally. Stocks looked better late in the week, but is this yet another head fake. Meanwhile, the Nasdaq continues to live below key levels.
One area of the market remains on intensive care: speculative or richly valued growth stocks.
That includes EV stocks such as Tesla (TSLA), Nio (NIO), Xpeng (XPEV) and Li Auto (LI). But it also includes Teladoc Health (TDOC), Roku (ROKU), Baidu (BIDU), Palantir Technologies (PLTR) and many more. From Tesla stock on down, these stocks are well below their 50-day lines. Roku, Baidu and Palantir stock are trading at 2021 lows.
Hedge Fund Liquidation?
Archegos Capital Management reportedly was behind Friday’s huge losses, at least intraday, for many stocks, such as Viacom (VIAC), Discovery Communications (DISCA), Tencent Music Entertainment (TME), Vipshop (VIPS) and Baidu. Many of these stocks already tumbled earlier in the week. Archegos reportedly was forced to sell some $20 billion worth of holdings.
Is the Archegos forced selling over? There are reports that there may be stock sales, including in Viacom.
Possibly related: Japanese brokerage Nomura said its U.S. unit may face a $2 billion loss related to a U.S. client.
Dow Jones Futures Today
Dow Jones futures fell 0.25% vs. fair value. S&P 500 futures sank 0.35% and Nasdaq 100 futures retreated 0.5%.
Coronavirus cases worldwide reached 127.76 million. Covid-19 deaths topped 2.79 million.
Coronavirus cases in the U.S. have hit 30.96 million, with deaths above 562,000. On Friday, the U.S. added over 76,000 new Covid cases, the most in a month, especially in New York and other colder, northern states. Easing Covid restrictions and different strains may be pushing up cases. But coronavirus vaccinations are running at a fast clip, likely preventing another big wave of infections.
India and especially Brazil are seeing a spike in Covid cases, with deaths surging in the latter.
Stock Market Rally Last Week
U.S. Stock Market Today Overview
Last Update: 3:06 PM ET 3/26/2021
The stock market rally retreated for much of the week but found its footing during Thursday’s session. A final-hour frenzy on Friday put a positive spin on the week.
The Dow Jones Industrial Average rose 1.4% in last week’s stock market trading. The S&P 500 index climbed 1.6%. Essentially all of the gains game on Friday. The Nasdaq composite edged down 0.6% after falling sharply to Thursday’s low. The Russell 2000 sank 2.8%, but did manage to end just above its 50-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 6.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 4.9%, even with end-of-week gains. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.5% thanks to Friday’s 2.1% gain. The VanEck Vectors Semiconductor ETF (SMH) rallied 3.4%, thanks to Friday’s 5% surge. Intel stock, KLA, ASML and LRCX are all notable SMH holdings
SPDR S&P Metals & Mining ETF (XME) ticked up 0.15% but recovered from steep losses, capped with a 6.35% Friday surge.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) and ARK Genomics ETF (ARKG) both tumbled 6.9% last week, with fractional losses Friday. Tesla stock is the top holding across ARK Invest’s ETFs. Teladoc, Baidu and Roku stock also are major holdings by ARK, which also owns PLTR stock and Zoom.
Chip Gear Stocks In Buy Zones
ASML stock surged 7.1% on Friday to 625.67, capping a 14% weekly gain. That’s in range from a 608.81 buy point from a consolidation that was one day short of a cup base. However, ASML is 10.7% above its 10-week line, so by some measures it’s extended. But after Monday’s open, with the start of the new week, the 10-week line will be somewhat higher. So ASML stock will be in buy range, though investors might wait to see if shares pull back some. The relative strength line is at a new high.
LRCX stock leapt 6.6% on Friday to 584.23 rebounding bullishly from its 50-day and 10-week lines. Lam Research stock is actionable now, with 603.70 as the official buy point.
Entegris stock leapt just over 6% to 110.03. That broke a trend line and cleared a 108.92 handle entry. ENTG stock has another entry at 110.47 in what could be seen as a double-bottom base. The official buy point is 114.10.
KLAC stock rose 6.9% on Friday and 9.2% for the week to 319.94, rebounding bullishly from the 50-day line like LRCX stock. The official entry for KLA stock is 342.31.
MKSI stock rallied 7% to 183.11, back above a 117.46 double-bottom buy point, according to MarketSmith analysis. But it also has a messy handle with a higher entry at 184.79. MKSI stock is just below that, though it finished Friday above the closing high of the handle. The RS line is at short-term highs.
Story Time Over For Tesla Stock, Roku
Tesla stock sank 5.5% to 618.70 last week, the sixth decline in seven weeks. Tesla stock at least tried to get back above its 21-day line last week, which is more than can be said for most of these story stocks.
Nio stock plunged nearly 17%, closing in on its 200-day line. Xpeng stock tumbled 14% and Li Auto 9.8%.
Tesla is likely to report first-quarter global deliveries late next week. Nio is likely to release March figures late next week, but warned Friday that it would suspend output next week and trimmed its Q1 deliveries target.
Roku stock plunged 12%, Teladoc 7.4% and Baidu 19%, all hitting 2021 lows. PLTR stock slid 7.15%, testing recent lows.
All of these were big 2020 winners. The “story” is still there. That can be helpful when a stock is running higher, but don’t let a story override technical signals. From Baidu stock to Tesla, all of these names are seriously damaged. Many of these stocks may bounce back, but could take a significant amount of time. Some former winners never come back.
Wait for these stocks to reclaim their 21-day and 50-day lines before taking them seriously.
Market Rally Analysis
The stock market rally showed positive overall action, thanks to some late heroics, but it was still a mixed bag.
The Dow Jones tested its 21-day exponential average on Thursday. The S&P 500 closed below the 21-day on Wednesday and briefly undercut the 50-day line the following session. But by the end of the week, the Dow and S&P set record closes, just below the all-time highs.
Friday’s strong Dow and S&P 500 price moves on higher volume than Thursday were strong enough to be follow-through days. But because the market entered Friday as “uptrend under pressure” vs. an outright correction, it’s not a FTD. Still, given the shaky market, big gains on higher volume are very welcome.
The Russell 2000 plunged below its 21-day and 50-day line last week and came close to its March lows before rebounding. The small-cap index closed just above the 50-day line, but still with sizeable weekly losses.
The Nasdaq, despite its big intraday swings, ultimately had the least-consequential week of the four key indexes. It started the last week reclaiming its 21-day but soon hit resistance at its 50-day line and sold off. After rebounding from Thursday’s intraday lows, the Nasdaq ended with a modest loss. The Nasdaq’s strong Friday gain came on lighter volume as well.
Ultimately, the tech-heavy composite remains below its 21-day and 50-day moving averages. As long as that’s the case, there’s going to be a question mark about the entire stock market rally.
As volatile as the broad indexes were, individual stocks and sectors often were even choppier. Even when the overall trend is sideways, the big intraday and weekly moves make it hard to make much headway.
There’s just enough good action to lure investors in. And more than enough to shake them out. That’s the hallmark of a choppy market.
If the market can have more strong moves, or simply slowly advance in taming action, then today’s buyable stocks are likely to prosper. But that’s the big wild card.
What To Do Now
This is a stock market rally, with Friday’s action encouraging. There are a number of quality names in buy zones or setting up. So investors can be invested. But until there’s more proof that this market is on a steadier path, keep your individual positions small and your overall exposure light.
Have an exit strategy for your positions. That’s especially important in choppy markets, when there is a strong possibility that a stock will pullback significantly after breaking out or flashing a buy signal.
Build a broad watchlist. Look for stocks with strong fundamentals or at least rebounding earnings that are moving toward or above pre-pandemic levels. Make sure to have a diverse watchlist. Check . Yes, chip gear and housing-related retailers are looking strong, but stock market rally leadership is in flux. So don’t get locked into one or two groups.
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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