The stock market rally had a wild, divergent week. The indices were solidly lower in the middle of the week. But technology flourished then Nvidia (NVDA) skyrocketed, sending chips and artificial intelligence games soaring. Meanwhile, optimism about a debt ceiling deal returned late in the week, overshadowing a growing likelihood of another Fed rate hike. Still, the overall action for the week was mixed, with breadth at times stunningly anemic and a number of leading stocks struggling.
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Talks about the debt ceiling are still in focus over the holiday weekend, amid signs that an agreement is taking shape.
Tesla (TSLA), Netflix (NFLX), Arista Networks (A WEB), At Semiconductor (ON), NetEase (NTES), Mobileye (MBLY), Smartsheet (FAT), Aehr test systems (AEHR) and McKesson (MCK) trades near points of purchase.
ANET shares, Netflix, On Semiconductor, NetEase and Mobileye all flashed buy signals on Friday. Tesla, Aehr Test Systems, Smartsheet and MCK shares are all close to actionable.
Investors can gradually increase exposure if the market rally makes further, broader progress.
NVDA stock is on the IBD Leaderboard. MBLY stock, Smartsheet is on the IBD 50. Arista Networks was Friday’s IBD Stock Of The Day. The SMAR share was Thursday’s selection.
The video embedded in this article discusses the weekly market action and analyzes Arista Networks, Smartsheet and Tesla stocks.
Talks about the debt ceiling
Late Friday, the Treasury Department said it won’t run out of funds until at least June 5, giving negotiators a little more time to hash out a debt ceiling deal. Previously, the Ministry of Finance had said that a default could come as early as June 1.
House Republicans and President Joe Biden appear to be closing in on a debt ceiling deal that would impose some caps on discretionary spending. But there’s no deal yet, and any tentative deal would have to clear Congress.
Dow Jones Futures today
Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
The US stock markets will be closed on Monday in observance of Memorial Day. 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
Shares struggled mid-week on debt ceiling concerns, but bounced back as Nvidia unleashed an AI revolution and default fears eased. Still, the indices closed mixed.
The Dow Jones Industrial Average fell 1% in last week’s trading. The S&P 500 index rose 0.3 percent. The Nasdaq composite rose 2.5 percent. The small-cap Russell 2000 closed flat.
The 10-year Treasury yield rose 13 basis points for the week to 3.82%, the highest point since early March. The odds of a Fed rate hike next month have increased to 70%.
US crude oil futures rose 1.4% to $72.67 a barrel last week. Copper prices fell 1.3% but rebounded from 2023 lows, jumping 2.6% on Friday.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) rose 3.4%, with SMAR stock a small holding. The VanEck Vectors Semiconductor ETF (SMH) exploded for a 10.55% gain with Nvidia as a large holding and ON stock also in the ETF.
As a result of more speculative stock stocks, the ARK Innovation ETF (ARKK) gained 1% last week and the ARK Genomics ETF (ARKG) gained 3%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.9% last week to a nine-month low. The Global X US Infrastructure Development ETF ( PAVE ) fell 0.8%. The US Global Jets ETF (JETS) fell 1.25 percent. The SPDR S&P Homebuilders ETF ( XHB ) fell 2% after hitting a 52-week high last week. The Energy Select SPDR ETF (XLE) fell 1.1%. The Health Care Select Sector SPDR Fund ( XLV ) fell 2.9%. The MCK share is part of XLV.
The Financial Select SPDR ETF ( XLF ) retreated 1.5%, falling below its 50-day mark. SPDR S&P Regional Banking ETF (KRE) rose 2.75% but hit resistance at the 50-day line
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Tesla shares jumped 7.2% to 193.17 on the week, including Friday’s 4.7% pop on heavy volume. The EV giant definitely cleared its 50-day line and is now approaching a buy point at 207.89, according to MarketSmith analysis. That buy point is for an eight week cup base or a three month double bottom consolidation. Regardless, TSLA stock has been consolidating just below the 200-day line all along. However, the 200-day line is now right at the 200 level, below the buy point. So a breakout would be valid, with a decisive drop below the 200-day line as a place to exit.
Other stocks near buy points
NFLX jumped 5.5% to 378.88 on Friday, clearing an alternative buy point at 375.97 from a double-bottom base and hitting a 52-week high.
ANET shares shot up more than 18% to 170.35 for the week amid the AI frenzy. Shares jumped above the 50-day line and touched a trend line on Thursday, then jumped 9.1% on Friday, on heavy volume in both sessions. Arista stock is now slightly extended from the 50-day/trendline early entry, but is also near the official buy point of 171.54. Ideally, stocks would pause and forge a handle. The ANET share has recovered since the plunge on May 2 after management did not provide enough guidance to satisfy investors.
ON stock bounced back from its 50-day line on Thursday, then rose 5.6% on Friday to 86.62. Shares broke the downtrend to a steep handle, making an early entry. The official buy point is 87.17, which Onsemi briefly topped intraday on Friday. Note that On Semiconductor stock has a history of breaking out but later falling back into the old base. On Semiconductor is a Tesla chip supplier.
AEHR stock was down 0.6% at 32.76 for the week, but found support at the 50-day line and rallied solidly late in the week. A handle has been forged that is a bit too low to be true, but investors can use 33.40 as an early entry. It is probably safer than waiting for a traditional breakout above 40.79. On Semiconductor is Aehr Test System’s top customer.
MBLY stock broke out with a 10.6% weekly gain to 45.14, jumping back above the 50-day line. It offered an aggressive entry on Thursday and Friday morning, but Mobileye stock has now extended from that. It is close to a trendline entry near 46, with 47.04 another key level. The official buy point is 48.21. Ideally, MBLY stock would pause and forge a handle. Like the ANET share, Mobileye plunged after earnings several weeks ago.
SMAR stock is stopping just below a 49.09 buy point from a cup base, right next to another short consolidation. Smartsheet shares rose 2.2% to 47.86 for the week, with all the gains and more on Friday. The work scheduling software maker has rallied after strong results earlier this month from Monday.com (MNDY). Smartsheet earnings are due on June 7th.
MCK shares fell 2.4% to 387.95 last week, near the top of a six-month consolidation. The drug distributor has forged a handle with a buy point of 401.53. McKesson stock is a defensive growth play. So if a risk-on, growth rally takes firm hold, McKesson could hang on.
NTES shares rose 2.4% for the week to 89.51. On Thursday, the shares recovered from the 200-day line after earnings. On Friday, NetEase stock retook the 50-day line, making an early entry. The Chinese mobile gaming giant has a buy point of 95.09 flat-base.
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Market rally analysis
After Thursday’s astonishingly divergent session, technology led again on Friday, but gains were more broad-based. Debt ceiling optimism, after some mid-week euros, helped strengthen investor sentiment.
Nevertheless, this is a divided stock market rally. The Nasdaq is rising towards its August highs, with the Nasdaq 100 already there. The S&P 500, after falling back into its sideways range midweek, is right at 2023 highs again.
But the Dow Jones fell below its 50-day and 200-day lines in the past week, although it reclaimed its 200-day on Friday. The Russell 2000 fell back from its 200-day line, although it erased losses and closed above the 50-day.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) was up 1.6% for the week. On Friday, the QQEW jumped 2.5%, hitting a 2023 high and nearly topping the August peak. It was a sign of broader participation, at least among growth stocks.
The Invesco S&P 500 Equal Weight ETF ( RSP ) fell 1.2% for the week, falling back below all moving averages again, even with a solid Friday rally.
Within the AI and chip areas, a large number of stocks had huge weekly gains, many running past buy points.
But elsewhere, market leadership is narrow. A number of shares and groups suffered significant losses in the middle of the week. Some have returned, but others may need to be set up again.
A debt ceiling deal seems close, but it’s not here yet. Given that the market holds up or moves into the default deadline at the beginning of June, an actual agreement to raise the debt limit may not provide large additional gains.
Concerns about interest rate increases may take center stage again. On the plus side, it coincides with relatively solid economic data, easing fears of a recession.
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What to do now
The past week offered some buying opportunities, although investors had to take them quickly. The mixed market signals may also have instilled some understandable caution.
This was a “fortune favors the bold” week, but over the past few months “beauty is the better part of valor” has been a sensible course.
Ideally, a market rally will give clear signals to be more or less aggressive. That has not been the case since the beginning of February.
Meanwhile, many AI and chip names have run through buy zones and haven’t looked back, but a number of other stocks have staged shakeouts or clear sell signals.
Assuming the market rally makes further progress and more stocks are flashing buy signals, you can increase your exposure. But do it gradually. If this uptrend takes hold, it won’t take long to be fully exposed. If this split market takes a Mr. Hyde turn, your losses will be minimized.
Run your screens this weekend. The big swings of the past week could mean significant changes to your watchlists. Come back on Tuesday awake, flexible and ready to act.
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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