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Dow Jones Futures Due: Market Rally Clears Resistance; Tesla’s big transition




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




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The stock rallied in the last week, with strong gains, clearing key levels. The S&P 500 briefly faced resistance at the 200-day line, but moved above that key level on Friday. A large number of leading stocks flashed buy points.

Investors can gradually increase exposure as the market rally improves. While many top stocks are now extended, Wendy’s (WEN), Exxon Mobil (XOM), Quanta services (PWR), Celsius Holdings (CELH) and Isolate (PODD) are all actionable from early listings. Wendy’s and PWR bearings have new flat bases, which go with XOM bearings and Insulet. The CELH share needs another week to build a proper base.

CELH stock is on SwingTrader and the IBD 50. Celsius, Insulet and Wendy’s were the last three IBD Stock Of The Day picks.

Meanwhile, Tesla (TSLA) announced big price cuts in the US and Europe on Friday, a week after cutting prices in China and key Asian markets.

Tesla shares closed modestly lower, but rebounded solidly for the week. But the EV giant faces a painful transition as investors increasingly view Tesla as an automaker, not a technology company.

The video embedded in this article discussed the strong week for the market rally, analyzing WEN stock, Quanta Services and Celsius.

Bitcoin price

Bitcoin price briefly topped $21,200 on Friday night, a two-month high. The leading cryptocurrency is currently trading around $20,800. Bitcoin was trading just below $17,000 as recently as January 8.

Bitcoin’s rise coincides with the stock market rally, which shows a return to more speculative investments. That includes growth stocks, especially speculative-type plays like the ARKK ETF. Some meme stocks had a big week, in particular Bed Bath & Beyond (BBBY). BBBY stock soared 179%, even as the retailer has signaled it is headed for bankruptcy.

Dow Jones Futures today

Dow Jones futures open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.

U.S. stock and bond markets will be closed Monday for the Martin Luther King Jr. holiday, but other exchanges around the world will be open.

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


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market rally

The stock rally had a strong week, with the major indexes closing near session highs.

The Dow Jones Industrial Average rose 2% in last week’s trading. The S&P 500 index rose 2.7 percent. The Nasdaq composite rose 4.8 percent. The small-cap Russell 2000 jumped 5.3%.

The 10-year Treasury yield fell 6 basis points to 3.51%, even with Friday’s setback. Markets strongly expect quarter-point Fed rate hikes in February and March, but then policymakers are on hold. Falling government interest rates and a brighter economic outlook elsewhere are pushing the dollar, giving a further boost to stocks and commodities.

US crude oil futures rose 8.3% to $79.86 a barrel last week. Copper prices rose 7.65 per cent.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) gained 4.4% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 2.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 4.9%. VanEck Vectors Semiconductor ETF (SMH) rose 6.7%.

Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) rose 14.7% last week and the ARK Genomics ETF ( ARKG ) just over 16%. TSLA stock is a large holding across Ark Invest’s ETFs. Cathie Wood’s Ark has been replenishing its Tesla stocks in recent days and weeks.

The SPDR S&P Metals & Mining ETF (XME) jumped 6.3% last week to a seven-month high. The Global X US Infrastructure Development ETF (PAVE) rolled 4.2% higher. The US Global Jets ETF (JETS) rose 9.4%. The SPDR S&P Homebuilders ETF (XHB) rose 4.6%, despite weakness KB Home (KBH) earnings. The Energy Select SPDR ETF (XLE) rose 0.14%, with XOM stock a key component. The Financial Select SPDR ETF ( XLF ) rose 2.1%. The Health Care Select Sector SPDR Fund ( XLV ) was down 0.2%.


Top five Chinese stocks to watch now


Shares in buying areas

Wendy’s shares had a big upside on Friday, jumping 6% to 23.08 after hitting an intraday low of 21.36. WEN stock regained its 50-day line, moved above the 21-day and broke above a trendline. It offered an early entry into the new flat base. The official buy point is 23.88, according to MarketSmith analysis.

Wendy’s on Friday reported a fourth straight quarter of accelerating sales growth, doubled its dividend and announced a $500 million buyback.

XOM shares rose 2.4% to 113.16 last week, its fifth straight weekly gain. Shares are slightly below the official buy point of 114.76 and do not appear to be extended from the 50-day line with this move. But investors could already enter Exxon stock.

PWR stock jumped 6.7% to 148.50 last week and is rebounding back above the 50-day line, making an early entry. The shares also regained a previous buy point of 144.41 which is no longer valid.

CELH stock broke above the 50-day and 21-day lines on Wednesday, breaking a downtrend, providing more reasons for an early entry. The shares held support on the 21st, and then higher on Friday. Celsius stock is active now after rising 13.2% for the week.

Insulet stock rose 4.65% in the past week to 305.89, bouncing back from the 21-day and 50-day lines. Shares are actionable now. But investors can wait for a break of a trend line, currently just above Friday’s high of 309.44.

Tesla stock downshifts to auto?

Tesla shares rose 8.3% to 122.40 last week, continuing a pullback from the Jan. 6 bear market low of 101.81. Shares fell 0.9% on Friday, well off intraday lows despite Tesla announcing sweeping price cuts in the US and Europe. It came a week after Tesla cut prices in China and key Asian markets.

The price cuts should fuel sales, especially in the US, with several Tesla EV variants eligible for a $7,500 tax credit. That means a huge price cut for American consumers. But Tesla’s prized margins are likely to take a hit.

On Tuesday, investors will receive China EV weekly filings, which should show a big jump in Tesla sales, as well as the possible impact on rivals. But will Tesla get a lasting boost, especially in China and Europe? Orders significantly delayed deliveries in late 2022, so Tesla needs a big boost in new demand just to maintain its current delivery pace in 2023.

Already fierce competition in China will intensify in 2023, with Tesla’s price cuts possibly triggering a wave of margin-killing cuts. Europe is also increasingly crowded. Even the US EV market will be more competitive in a year’s time, with falling used car prices already a major drag on new vehicle prices.

But Tesla’s EV sales aside, TSLA stock has a bigger problem. Investors increasingly view the EV giant as an automaker, not a technology company. Tesla’s current price-to-earnings ratio of 33 isn’t too steep for a tech growth company. But it is unusually high for a car manufacturer. The auto industry’s advantages and margins tend to erode relatively quickly, which may be happening with Tesla right now.

TSLA stock may deserve a high valuation for a car manufacturer, which reflects the EV giant’s continued robust EPS and sales growth. But still, that would indicate a much lower valuation than it has boasted until recently.

General Motors (GM), Ford (F) and Chrysler-and-Fiat parent Stellar (STLA) has all PE ratios in the single digits. Toyota (TM) is at 10.


Tesla vs. BID: EV Giants Vie For Crown, But Which Is The Better Buy?


Market rally analysis

The stock rally had an encouraging week, based on strong gains on 6 January. The major indices rose solidly and regained key levels. A large number of leading stocks flashed buy signals during the week, with most holding or extending gains.

The S&P 500 Index moved above its 50-day moving average and came up to its 200-day line. The benchmark hit resistance at that key level Thursday-Friday, but eventually broke above it.

The Dow Jones, Russell 2000 and S&P MidCap 400 are above all their moving averages and nearing their short-term highs in December.

The Nasdaq retook its 50-day moving average and moved above the 11,000 level. The laggard index had been close to its lowest levels in the bear market at the start of the year.

Stocks opened solidly lower on Friday, as earnings initially hit airlines, health insurers and bank stocks, Tesla price cuts hit auto stocks and an analyst downgrade hit major defense contractors.

Even without the negative headlines, the market was arguably due for a pullback after the strong gains and with the S&P 500 at its 200-day line.

Nevertheless, the market quickly recovered and closed higher.

Industry, the broad housing sector, many medicines as well as some retailers and restaurants are showing strength.

Tech names remain scarce among leading stocks, although they are trying to make a comeback. The SMH chip ETF cleared its 200-day line this past week, while the IGV software ETF and ARKK are above their 50-day moving averages.

The S&P 500 still needs to clear the 200-day line. The December highs are large for all the main indices.

While the stock market appears to be less concerned about the Federal Reserve, with a path toward a pause in rate hikes, earnings season will take center stage.


Time the market with IBD’s ETF market strategy


What to do now

Investors may make new purchases as stocks continue to improve. But do it gradually. While the market rally has shown strength and resilience in recent days, a pullback would not be a surprise for the major indexes, key sectors or individual stocks.

The earnings season will intensify in the coming weeks, creating the potential for large fluctuations. Exxon and Tesla shares will report in the next three weeks, along with tech giants apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN) and Google parent Alphabet (GOOGL).

So don’t get too concentrated in a particular sector, even if it gives good results. Strive for a diversity of leading stocks.

Bulk up your watchlists. Look for stocks that can trade, set up or potentially trade if they stop or pull back. Broad strength, at least outside of technology, should offer a range of possibilities.

Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.

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