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

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




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The stock market rally has generally lost ground over the past week, but the major indexes have found support at key levels. However, many promising stocks pull back shortly after crossing buy points. Investors should follow some 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 shares are actionable, while Celsius (CELH) is rising.

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

A stock that does not hold well is Tesla (TSLA). Tesla shares have plunged this past week, breaking into new bear-market lows on Friday.

Dow Jones Futures Today

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

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


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


Stock market rally

Outside the Dow, the stock market rally showed modest losses after the previous week’s strong gains, though there was an insignificant pullback from Tuesday’s high to Thursday’s low.

The Dow Jones Industrial Average made a fractional profit in stock market trading last week. The S&P 500 index fell 0.7%. The Nasdaq composite sank 1.5%. The small-cap Russell 2000 yielded 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 plunged 10% last week to $80.08 a barrel. China’s zero-Covid signal and hawkish Fed comments raise demand concerns. Natural gas prices gained 7.2%.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) slipped 1.1% last week, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) was down 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 3.55%, and cloud software names were hit hard. VanEck Vectors Semiconductor ETF (SMH) retreated 0.65%, hitting resistance at the 200-day line.

Reflecting the more speculative stock history, the ARK Innovation ETF (ARKK) plunged 9.5% last week and the ARK Genomics ETF (ARKG) plunged 11.1%. TSLA stock is a major holding through Ark Invest’s ETFs.

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The SPDR S&P Metals & Mining ETF (XME) slipped 1.9% last week. Global X US Infrastructure Development ETF (PAVE) slipped 0.1%. The US Global Jets ETF (JETS) is down 2.9%. The SPDR S&P Homebuilders ETF (XHB) shed 3%. The Energy Select SPDR ETF (XLE) lost 1.6% and the Financial Select SPDR ETF (XLF) fell 1.4%. The Healthcare Sector SPDR Fund ( XLV ) rose 0.9%. VRTX is part of the XLV fund.


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Stock Near Buy Points

VRTX stock rose 3.75% to 314.63 last week, claiming a 306.05 buy point from a flat base, part of a base-on-base formation. The biotech plunged in the day on November 11, as medical stocks came under pressure, but cut losses. The relative strength line is off recent highs but has shown steady gains throughout the year. Vertex earnings growth remains strong.

Stock SCHW was already 2.45% on Friday at 79.81, breaking the downward trend in a handle, offering an early entry. The official buy point is 81.18 from a deep, nine-month cup-and-handle base. However, the handle also formed just above a base entry at 77.51.

EE stock rose 2.7% to 27.17 on Friday, also breaking the trend of a handle. The April IPO has a buy point of 28.49 cup and handle, according to MarketSmith analysis.

Stock CALX jumped 6.6% to 69.82 on Friday, rebounding bullishly from a pullback in the 21-day moving average. That pullback followed an earnings gap after several weeks of tight trading. Calix earnings are still declining, but government funding for rural broadband is expected to fuel future growth.

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

Tesla Stock

Tesla shares fell just over 8% to 180.19 last week, slipping to a fresh bear-market low of 176.55 on Friday. That followed declines of 5.5% and 9.2% in the previous two weeks, continuing a sharp slide since late September.

It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has some demand concerns as production swells and competition heats up. It cuts prices in China, and further reductions likely as subsidies end on December 31. Meanwhile, the “Twitter circus” remains a concern. CEO Elon Musk’s chaotic reign in just three weeks risks damaging the Tesla brand.

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Tesla is still growing strongly, while new US subsidies should boost domestic demand in 2023.

But TSLA stock has gone over the years to go sideways or down. So while the EV giant can rev higher again, investors should wait for the chart to set up again. This may take a long time.


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Market gathering analysis

The stock market rally had a down week. After the high CPI-fueled the previous week rose, the indices initially rose, but then pulled back from the Tuesday’s ogma, testing key levels on Thursday. But shares rebounded modestly from Thursday’s lows.

A market pause was not a big surprise given the recent sharp gains, with the S&P 500 index approaching its 200-day line. Holding the support zone is a positive, while the 21-day line of the Nasdaq is crossing above the 50-day. Assuming the indices hold these levels and eventually move higher, this should be a constructive week for the major indices.

But it was a frustrating week for leading stocks. A decent number of stocks broke or flashed buy signals early in the week. But with the indexes pulled back, many of these names quickly flipped back to the bottom of the entries. Some may quickly unwind or set up soon, but that will likely depend on the market.

Energy stocks had a rough week as crude prices fell, though LNG stocks play EE is an exception.

Medical stocks, which came under pressure with defensive growth names, rallied this week. This includes shares of VRTX as well as many biotechs and health insurance companies.

Network companies like Calix, some financial like Schwab, as well as building materials and a number of sectors are still looking interesting.

Aggressive growth did not have a good week. This includes Tesla stock, cloud software and the ARK brand name. CELH stock was an exception.


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Investment Rules for this market rally

Investors should always have sound trading rules. But the current tough market rally means investors should emphasize light, flexible trading. Here are seven guidelines.

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Keep light exposure: This is not an angry bull market. Investors should participate in this rally, but it is not a time to be on the sidelines.

Add exposure gradually: Do not increase exposure quickly. Buying a lot of shares on, say, Tuesday, would create rapid losses in the resulting market pull. Let the market gradually attract you.

Look for early entry: Breakouts have struggled in 2022, partly due to these markets and sector rotations. By the time a stock reaches a traditional buy point, especially in a deep base, it may be due for a pullback. Early entry offers a chance to get in on promising action before the mini run pauses.

Take partial profit: Given the current upand-down nature, investors should consider taking partial profits quickly. This can give you the confidence to let the remaining position rise. Know the character of your holdings. Some stocks are more prone to large volatile movements, and partial profits are especially important.

Know your line in the sand: You should enter a trade knowing where you are going to get out, either fully or staggered. If the action advances, you could raise your stops.

Leadership diversity: While it is a good idea to focus on a small number of holdings, do not get too concentrated in a particular sector or theme. The rotation sector has hit defensive, defensive growth and growth stocks in the turn in the past several days. Try to find leading stocks from various backgrounds.

Prepare: If you want to buy the best stocks, by entering early, you need to do your homework. Work on screen to build your watchlists. Focus on specific names that are “ready” or almost so, but also have a long list of quality stocks that are starting to set up.

Read the Big Picture every day to stay connected with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson for the latest stock market news and more.

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