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

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




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Stock market bulls generally lost ground this past week, but major indices found support at key levels. However, many promising stocks pulled back soon after crossing the buy points. Investors should follow a few rules for the current trading environment, from keeping exposure light to taking partial profits.

Vertex Pharmaceuticals (VRTX), Charles Schwab (SCHW), Accelerate energy (EE) and CALX stocks are actionable, while Celsius (CELH) is establishing.

Vertex and CELH stocks are on the IBD 50 list. VRTX stock is also on the IBD Big Cap 20. Calyx (CALX) was Friday’s IBD Stock of the Day, with Accelerate Energy and SCHW stock picking up earlier in the week.

A stock that is not holding up well Tesla (TSLA). Tesla’s stock sank this past week, breaking a fresh bear-market low on Friday.

Dow Jones Futures Today

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

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


Join IBD experts as they analyze stocks worth taking action on in the stock market rally on IBD Live


Stock market rally

Outside of the Dow, the stock market rally showed modest losses following the previous week’s big gains, although there was no significant pullback from Tuesday’s highs to Thursday’s lows.

The Dow Jones Industrial Average was up a fraction in last week’s stock market trading. The S&P 500 index fell 0.7%. The Nasdaq Composite sank 1.5%. The small-cap Russell 2000 shed 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 a barrel. Zero-covid signals from China and hawkish comments from the Fed have fueled demand concerns. Natural gas prices rose 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 hit. Vanek Vectors Semiconductor ETF (SMH) retreated 0.65%, hitting resistance at the 200-day line.

Reflecting the stocks over-speculative 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 Arc Invest’s ETF.

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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) fell 1.6% and the Financials Select SPDR ETF (XLF) fell 1.4%. The Health Care Select Sector SPDR Fund ( XLV ) rose 0.9%. VRTX is part of XLV Fund.


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Stocks near buy points

VRTX stock rose 3.75% to 314.63 this past week, reclaiming the 306.05 buy point from a flat base, which was part of a base-on-base formation. Biotech fell intraday on November 11, as medical stocks came under pressure, but pared losses. The relative strength line is off recent highs but shows steady progress throughout the year. Vertex earnings growth remains strong.

SCHW stock rose 2.45% to 79.81 on Friday, breaking the handle’s downtrend, offering an early entry. The official buy point from the deep, nine-month cup-with-handle base is 81.18. However, a handle is also forming above the bottoming base entry of 77.51.

EE stock rose 2.7% to 27.17 on Friday, also breaking the handle’s downtrend. The April IPO has an official cup-with-handle buy point of 28.49, according to MarketSmith analysis.

CALX stock rose 6.6% to 69.82 on Friday, rebounding from a pullback to the 21-day moving average. That pullback follows an earnings gap-up after several weeks of tight trading. Calix earnings are still falling, but government funding for rural broadband is expected to drive future growth.

Celsius stock rose 3.9% to 96.99 last week, but fell lower on Friday. That could be good news. The energy drink maker has a 118.29 consolidation buy point. A pause here may offer a low entry, though it is too low to be a proper handle. The 50-day line for CELH stock is still sliding but the 10-day and 21-day lines are crossing above those key levels.

Tesla stock

Tesla stock fell just over 8% last week to 180.19, having slipped to a fresh bear-market low of 176.55 on Friday. It continued its steep slide since late September, after declines of 5.5% and 9.2% in the following two weeks.

It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has demand concerns as production ramps up and competition increases. That lowers prices in China, where subsidies are more likely to end on December 31. Meanwhile, the “Twitter circus” remains a concern. CEO Elon Musk’s chaotic reign threatens to damage the Tesla brand in just three weeks.

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Tesla is still growing at a strong clip, while new US subsidies should boost demand at home in 2023.

But TSLA stock tends to go sideways or down for several years. So while the EV giant may move higher again, investors should wait for the chart to reset. It may take a lot of time.


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Market Rally Analysis

Stock market bullishness was down for the week. After the previous week’s big CPI-fueled rise, the index rose initially, but then pulled back from Tuesday’s highs, testing key levels on Thursday. But stocks rallied modestly from Thursday’s lows.

The market break wasn’t a big surprise given the sharp recent gains and the S&P 500 index approaching its 200-day line. Holding support areas are positive, while the Nasdaq’s 21-day line is about to cross above the 50-day. Assuming the indices hold those levels and eventually move higher, this will be a constructive week for the major indices.

But it was a disappointing week for leading stocks. A good number of stocks broke or breached buy signals earlier in the week. But with the withdrawal of indexes, many of those names quickly returned to the bottom of the entry. Some may rebound quickly or set off soon, but that will likely depend on the market.

Energy stocks had a rough week as crude prices tumbled, although LNG play EE stock was the exception.

Medical stocks, under pressure with defensive growth names, rallied again this week. That includes VRTX stock as well as several biotech and health insurance companies.

Networking companies like Calix, some financials like Schwab, as well as building materials and a number of sectors still look interesting.

The week has not been good for aggressive growth. That includes Tesla stock, cloud software, and ARK-type names. CELH stock was an exception.


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Investment rules for this market rally

Investors should always have good trading rules. But the current difficult 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 participate in this rally, but this is not the time to be on the sidelines.

Gradually add exposure: Do not increase exposure too quickly. Buying a bunch of stocks on Tuesday will result in quick losses from the resulting pullback in the market. Let the market pull you in slowly.

For early entries see: Breakouts have struggled in 2022, in part due to turbulent markets and sector rotation. By the time the stock reaches a traditional buy point, especially from a deep base, it may be due for a pullback. Early entries offer an opportunity to enter promising stocks before the mini run pauses.

Take Partial Profit: Given the up-and-down nature of the current uptrend, investors should consider taking partial profits quickly. This can give you the confidence to let the rest ride. Know the character of your holdings. Some stocks are more sensitive to large volatile moves, with fractional profits being particularly important.

Know your line in the sand: You should enter a trade knowing where you will exit, either completely or scaling out. If the stock moves up, you can move up your stop.

Diversity of Leadership: While it’s a good idea to focus on a small number of holdings, don’t over-concentrate in one particular sector or theme. Defensive, defensive growth and growth stocks have been affected by sector rotation in the last few days. Try to get leading stocks from different backgrounds.

Be Prepared: If you want to buy the best stocks, on early entries, you have to do your homework. Work on the screen to create your watchlist. Focus on specific names that are “ready” or so, but also a broad list of quality stocks that are starting to set up.

Read The Big Picture daily to stay in tune with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.

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