Dow Jones futures fell slightly Monday morning, along with S&P 500 futures and Nasdaq futures, after the stock market rally rebounded back to record highs last week. U.S.-listed China stocks continued to plunge as Beijing expanded its crackdown on the private sector. Bitcoin spiked to nearly $40,000 Sunday night before pulling back somewhat.
Those six companies have a combined market cap of nearly $10 trillion. All except Tesla stock had solid to standout weeks, trading at or near record highs.
Tesla stock investors face a big decision before Monday’s close. Meanwhile, Nvidia (NVDA) is still actionable while rival Advanced Micro Devices (AMD) is near a buy point with its own earnings on tap.
The stock market rally made bullish moves last week, with the S&P 500 index and Nasdaq composite at record highs. But there are reasons to be cautious, at least for substantially adding exposure at current levels. Apple (AAPL) and the tech megacaps have run up a lot heading into earnings, already pushing the market rally back toward extended levels.
The Stock Market Today video in this article highlights Nvidia, Snap (SNAP) and Tesla stock, as well as analyzes the weekly market action.
China Stocks Keep Plunging
Beijing confirmed a crackdown on for-profit education firms, with New Oriental Education (EDU) and peers tumbling early Monday after plunging more than 50% on Friday. But that’s not all. Regulators barred Tencent Music Entertainment (TME) from having exclusive music rights, sending TME stock down more than 10%.. China also released regulations for food delivery platforms, including minimum wages. China signaled it’ll step up oversight of the property sector.
Severe floods in parts of China also could hurt economic activity. Hong Kong’s Hang Seng index tumbled 4.1% on Monday.
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The Bitcoin price, which traded above $34,000 for most of the weekend, skyrocketed Sunday evening to just above $39,500 before quickly paring gains somewhat. Bitcoin is currently trading above $38,000. There are rumors that Amazon will soon start accepting Bitcoin as payment by year-end, perhaps introducing its own token next year. The e-commerce giant reportedly looks to make some crypto-related hires. Bitcoin has traded in a range from above $29,000 to about $41,000 since late May. It recently reclaimed its 50-day line.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures lost 0.2% and Nasdaq 100 futures retreated 0.1%.
The 10-year Treasury yield edged lower along with crude oil prices. Copper futures rose modestly.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Coronavirus cases worldwide reached 194.96 million. Covid-19 deaths topped 4.17 million.
Coronavirus cases in the U.S. have hit 35.19 million, with deaths above 626,000.
New U.S. cases topped 67,000 on Friday, the most in two months. Hospitalizations have increased, though almost entirely among unvaccinated Americans. Covid deaths remain very low, though they will likely rise somewhat in the weeks ahead.
Stock Market Rally
The stock market rally started the week poorly but then powered higher impressively.
The Dow Jones Industrial Average rose 1.1% in last week’s stock market trading. The S&P 500 index gained nearly 2%. The Nasdaq composite popped 2.8% with the big-cap Nasdaq 100 up 3%. The small-cap Russell 2000 climbed 2.1%.
Apple stock rose 1.5% last week and Microsoft 3.2%. Amazon climbed 2.3% while Google rallied 4.8% and Facebook stock jumped 8.4%. Microsoft, Facebook and Google stock hit record highs Friday. AMZN stock is in buy range.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) soared 8.7% last week after erasing early losses. The Innovator IBD Breakout Opportunities ETF (BOUT) popped 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) leapt 4.9%, with Microsoft stock a major holding. The VanEck Vectors Semiconductor ETF (SMH) gained 4.2%, with Nvidia and AMD stock key components.
SPDR S&P Metals & Mining ETF (XME) climbed 3.2% and Global X U.S. Infrastructure Development ETF (PAVE) 2.5%. U.S. Global Jets ETF (JETS) elevated 2.5%. SPDR S&P Homebuilders ETF (XHB) ran up 4.8%. The Energy Select SPDR ETF (XLE) edged down 0.3% and the Financial Select SPDR ETF (XLF) climbed 0.4%.
Nvidia Leads Market Rebound
In the week ended July 16, Nvidia stock fell sharply. That was an ominous sign for the market rally given that Nvidia arguably has been the standout stock from the mid-May lows. But this past week it rebounded from its 10-week line, even rising Monday as the market retreated. That bounce was actionable. NVDA stock is still actionable as it finds support at its 21-day moving average and arguably comes up against a downward-sloping trend line.
Note that AMD earnings are on tap Tuesday, a potential catalyst for Nvidia stock.
AMD stock rebounded from its 200-day line last week moving up the right side of a handle. Investors probably could have bought AMD as it broke downtrends in that handle, but Tuesday night’s earnings would have made any such buy highly risky. Also, AMD stock rose in light volume, not especially inspiring.
If AMD earnings spur a strong reaction, investors could buy the chipmaker as it clears its official 95.54 cup-with-handle buy point, according to MarketSmith analysis.
In addition to Nvidia, AMD earnings could be important for data-center chipmakers such as Marvell Technology (MRVL).
Tesla Stock: Hold Or Sell?
Tesla earnings are on tap Monday night. Analysts expect another big earnings gain. But analysts and investors will be looking for answers, updates or hints on a variety of subjects.
When will the Berlin and Austin plants be operational? How close is Tesla to mass producing the 4680 battery cell. When will the Cybertruck and Semi begin production? What’s going on with Model S and X deliveries? Suffice to say that Tesla stock could make a big move to the upside or downside based on results, guidance and commentary.
Tesla stock edged down 0.1% to 643.38 last week, testing and holding support at its 200-day line but stuck below some aggressive buy points, such as 700.10.
If you bought Tesla stock long ago, you can sit back and await the latest earnings report. But if you bought or TSLA stock recently at various aggressive entries, you’ve got a big decision to make.
Back on June 23, Tesla stock reclaimed its 50-day line, right around 642. Assuming you bought right there, you’re basically flat. If you bought at 660 or as high as 700 in the past few weeks, you’re underwater.
You can hold and hope the earnings reaction is positive, but you risk a big loss. You can sell the stock and buy an option, with your risk defined and a lot of potential upside. Or you can sell and wait for the earnings. If TSLA stock gaps up, you can always buy it back as it clears a more appropriate entry, with earnings behind it.
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Market Rally Analysis
The stock market rally opened the week with heavy losses, extending a recent losing streak amid a number of warning signs. But the major indexes found support at key levels, cutting losses that day and then rallying the rest of the week. On Friday, the Nasdaq and S&P 500 hit record highs, while the Dow Jones came within a whisker of all-time levels.
Some leaders held support or closed higher on Monday, such as Nvidia stock and DocuSign (DOCU). Many others flashed buy signals later in the week. That’s a welcome change from the prior week, when leading stocks were losing key support.
Clearly, the stock market rally is in better shape than on Monday morning, but there are some concerns.
One concern is how much further the market rally can go. The Nasdaq is back to 5.1% above its 50-day line, not yet at the 6% level signaling that it’s extended. But the Nasdaq 100 is 6.7% above its 50-day. Many of the megacaps had big moves last week, notably FB stock and Google, while Apple, Microsoft and Amazon had solid gains. All have earnings this coming week.
Meanwhile, the Russell 2000 rebounded, but remains stuck below its 200-day line. That’s a reflection of poor market breadth. The Nasdaq advance/decline line improved a little during the week, but that’s after hitting its worst levels in six months.
Market volume was lackluster for much of the week, but picked up Friday.
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What To Do Now
Investors need to be thinking about how they’re going to handle earnings season. It’s typically a good idea to have some sort of cushion heading into results. The cushion depends on your investing style, the size of the position, your conviction in the stock — and how it’s traded after earnings in the past. Aside from holding or selling, you can reduce the position or move to an options strategy.
Remember, if you sell a stock, you can always buy it back — or buy something else.
Investors should have added to exposure selectively this week as buying opportunities presented themselves. This coming week, investors may want to see how the overall market and individual stocks and sectors react to big earnings before making big new bets. After Tesla stock on Monday, Apple, Microsoft, Google and AMD all report on Tuesday, with Facebook earnings on Wednesday and Amazon on Thursday. Hundreds of companies report this coming week.
Pay close attention to stocks setting up with earnings this week. Post-earnings breakouts could offer new opportunities to boost your exposure, assuming market conditions remain favorable.
As always, be prepared, remain flexible and take decisive action.
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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