Dow Jones futures and S&P 500 futures rose slightly Monday morning, while Nasdaq futures edged lower, with Tesla stock in focus. The stock market rally continued to press on to new highs last week, with all the key indexes hitting record highs.
The Nasdaq is getting extended, as Tesla (TSLA) and especially Nvidia (NVDA) surged higher last week, with other EV and chip names also soaring. It’s a time to pay close attention and consider some portfolio management.
Tesla stock fell solidly in the premarket after CEO Elon Musk proposed Saturday that he could sell a slice of his mammoth TSLA stock holdings. A majority of respondents to a Twitter poll supported the deal. Meanwhile, Nvidia is expected to announce a big metaverse push in a keynote speech Tuesday.
Meanwhile, take a closer look at EXPE stock, Airbnb (ABNB), Booking Holdings (BKNG), Apple (AAPL), Moderna (MRNA) and Peloton Worldwide (PTON).
Expedia (EXPE), Airbnb and BKNG stock all broke out Friday, buoyed by strong results last week and several positive tailwinds. Covid cases are down sharply, vaccinations are up, travel restrictions are easing while a new Pfizer (PFE) Covid pill offers much-greater treatment for patients who do get the coronavirus.
Travel could be the new hot sector, and far more than online travel sites. Hyatt (H) last week joined several hotel operators breaking out. Even airlines, beset by soaring fuel costs and widespread labor shortages, are starting to bounce back.
Meanwhile, that Pfizer Covid drug news slammed MRNA stock and other Covid vaccine makers. But Moderna stock had flashed several signals in prior months. So did PTON stock, which crashed to a 16-month low Friday on horrible Q3 results.
Finally, Apple stock now has a cup-with-handle buy point. But the AAPL chart shows an important flaw.
Tesla, Nvidia and ABNB stock are on IBD Leaderboard. Nvidia stock and Tesla are on the IBD 50.
The video embedded in this article analyzed the market action and reviewed Airbnb, EXPE stock and Moderna.
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House Infrastructure Bill
Late Friday, the House passed the $1 trillion infrastructure bill, which includes $550 billion in new funding. The vote was 228-206, with 13 Republicans providing crucial support as six left-wing Democrats opposed the measure. The legislation, which already passed the Senate months ago, will go to President Biden for his signature.
Steel and construction materials stocks were early winners Monday, along with Dow giant Caterpillar (CAT), likely on the infrastructure bill.
House Democrats are still struggling to agree on a tax-and-spending reconciliation bill. The Senate will almost certainly make changes to the House legislation, so a final package is weeks, if not months away.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures climbed 0.1%. Nasdaq 100 futures fell slightly, with Tesla stock acting as a drag.
The 10-year Treasury yield climbed 3 basis points to 1.48%.
Crude oil futures rose 1%.
Cryptocurrencies are rallying, with Ethereum topping $4,700 for the first time and Bitcoin near recent record highs.
Remember that overnight action in Dow futures and elsewhere doesn’t 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
The stock market rally had yet another strong performance, with the major indexes rising for the fifth straight week. The Dow Jones Industrial Average climbed 1.4% in last week’s stock market trading. The S&P 500 index rose 2%. The Nasdaq composite popped just over 3%.
The small-cap Russell 2000 surged 6%.
The 10-year Treasury yield fell 10 basis points last week to 1.45%, despite a Fed taper decision and a strong jobs report.
The two standout stocks of the current market rally, Nvidia and Tesla stock, last week ran up 16% and nearly 10%, respectively. Those follow sharp gains in the prior few weeks. At a combined market cap of nearly $2 trillion, that has had a huge impact on the Nasdaq. Both drifted lower Friday, which is probably healthy.
CEO Elon Musk To Sell Tesla Stock?
On Saturday afternoon, Elon Musk proposed “selling 10% of my Tesla stock,” because of claims that unrealized capital gains are a way to avoid taxes. It’s a strong signal that the world’s wealthiest man will sell some of his mammoth holdings — he owns 170.5 million shares of TSLA stock, plus well over 200 million including various options.
Musk asked for feedback, saying he would abide by the Twitter poll results. Some 58% of respondents favored Musk selling Tesla stock in the 24-hour survey.
A sale of 17 million shares would be worth about $21 billion at Friday’s close, though he could sell more if he takes options into account.
Musk selling a big TSLA stock stake could be a headwind for shares, especially at current lofty levels. But the move wouldn’t come as a huge surprise. Also, Musk gave no indication of the timing of any such sale.
TSLA stock fell 4% early Monday.
Shares rose 9.7% last week after surging 22% in the prior week. TSLA stock has rallied for 11 straight weeks, nearly doubling over that span.
Tesla early Sunday rolled out FSD Beta update 10.4, the latest version of its driver-assist software, to FSD owners with Beta access.
Jefferies raised its TSLA stock price target to 1,400 from 950.
Wedbush analyst Dan Ives raised his Tesla stock bull case price target to 1,800 from 1,500.
Tesla Shanghai delivered 54,391 EVs in October, including 40,666 for export, according to figures from the China Passenger Car Association data on EV and overall auto sales. But with Tesla local deliveries in China (and Europe) so skewed to the last month of the quarter, it’s better to judge Tesla demand on a quarterly basis.
Nvidia CEO Jensen Huang will give a keynote address at the Nvidia GTC conference on Tuesday morning, shortly after the market open. He’s expected to announce a new Omniverse initiative that will help make the metaverse a reality.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 2.5%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rallied 3.9%. The iShares Expanded Tech-Software Sector ETF (IGV) was flat. The VanEck Vectors Semiconductor ETF (SMH) surged 8.4%. Nvidia stock was a major SMH driver last week.
SPDR S&P Metals & Mining ETF (XME) rose 4% and Global X U.S. Infrastructure Development ETF (PAVE) gained 3.4%. The long-suffering U.S. Global Jets ETF (JETS) surged 10.85%. SPDR S&P Homebuilders ETF (XHB) advanced 3.2%. The Energy Select SPDR ETF (XLE) climbed 1.4% and the Financial Select SPDR ETF (XLF) retreated 0.6%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) edged up 0.8% and ARK Genomics ETF (ARKG) popped 3.8%. Tesla stock remains the top holding for ARK Invest’s ETFs.
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Airbnb stock surged 13% Friday to 201.62 on strong earnings and travel tailwinds. It was the heaviest volume for an up day since the Airbus IPO debut on Dec. 10, 2020.
Shares had moved just past a 177.06 flat-base buy point on Thursday ahead of results. Investors could have used options to play earnings, as IBD Live discussed on Thursday, or bought the gap-up Friday morning.
Expedia stock leapt nearly 16% to 182.17 on Friday after swinging to a profit and nearly doubling revenue. EXPE stock cleared a 175.47 buy point in the strongest volume in a year for an up day.
Booking stock jumped 8.2% to 2,618.97 last week, clearing a 2,540.10 buy point from a flat base, which was right next to a longer consolidation. BKNG stock came up to the buy point on Thursday following its earnings report, but erased its intraday gains. Shares surged Friday in the wake of the Expedia and Airbnb earnings and the Pfizer Covid pill news.
Moderna stock plunged Thursday and Friday, first on an earnings miss and then on the Pfizer Covid pill. But MRNA stock had flashed myriad sell signals in recent months. That includes taking partial profits in early August, just before the all-time high. On the downside, investors got an early sell signal as MRNA stock plunged through its 10-day line on Aug. 11. Various 21-day line breaks could have offered further signals. But breaking below the 50-day line on Sept. 28, followed by another gap down on Oct. 1, provided strong signals that the Moderna stock run was over, at least for a while.
In most cases, a winning stock will peak before the fundamentals.
Much like Moderna, Peloton stock crashed last week after offering many sell signals along the way. PTON stock plummeted 35% to a 16-month low on Friday following a big loss, weak revenue and slashed guidance. Bottom line, with the Covid pandemic waning, people are exercising more outside the home.
After a long, powerful run in 2020, PTON stock broke out again at the very end of last year. Investors probably could have bought the Peloton stock from the 50-day/10-week line a few days earlier, but the breakout initially worked. But after one week, shares began to whipsaw up and down. Investors, especially newer ones, may have wanted to take some profits.
Finally, on Feb. 17, PTON stock fell through its 50-day line, then kept sliding for several weeks. After finding 200-day line support, Peloton ran up to its 50-day line before reversing to fall through the 200-line. PTON stock did rebound again from early May to early July, as the delta Covid wave started to gain steam. But since then, shares have been in retreat.
Apple stock now has a cup-with-handle base, with a 153.26 buy point, according to MarketSmith analysis. The handle formed after AAPL stock rebounded from its 50-day line following mixed Apple earnings. But the relative strength line is at its worst levels since late June. More broadly, the RS line, the blue line in the charts provided, has been trending slightly lower since August 2020, reflecting Apple stock’s laggard status vs. the S&P 500 index.
Of course, a powerful Apple stock move would quickly revive the RS line. ABNB stock had a lackluster RS line until Friday’s surge.
Meanwhile, news broke late Friday that Apple has hired Tesla’s former Autopilot software director for its secretive Apple Car effort. C.J. Moore came under scrutiny earlier after he appeared to disagree with Elon Musk’s optimistic statements about Tesla self-driving capabilities in Moore’s conversations with California DMV officials.
It’s still unclear when Apple will come out with a car, expected to be electric and have self-driving capabilities.
The Apple Car hiring news had virtually no impact on Apple or Tesla stock late Friday.
Market Rally Analysis
The stock market had yet another strong week, with the major indexes and even the Russell 2000 hitting record highs. The Nasdaq is on a 10-day winning streak, managing to advance even with MRNA stock plunging 17%. The composite is starting to look extended, thanks to the likes of Nvidia, Tesla and some near-vertical giants, though Tesla and Nvidia stock did close fractionally lower Friday.
The Nasdaq closed the week 6.1% above its 50-day line. The Nasdaq 100 is 6.7% above the 50-day line, after topping 7% intraday Friday.
When the Nasdaq gets 6% and especially 7% above its 50-day line, it’s at higher risk of a pullback, with the odds rising that any such pullback will be larger. Of course, the market rally can keep moving higher for some time when it’s extended, and pullbacks often are modest. It’s also early in the latest market rally, so it’s less concerning.
On a related note, the S&P 500 index is 4.9% above its 50-day line. The S&P 500 may start seeming stretched if it’s 5%-6% above its 50-day.
Finally, a market rally pullback would likely be healthy, letting leaders pull back to key levels or form new bases, offering new opportunities to buy.
Meanwhile, the market is showing broad strength. Yes, chips are leading the way right now, along with other techs. But travel plays are looking strong, while EV makers, retailers, steel, and industrials are all showing at least pockets of strength.
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What To Do Now
With the stock market rally starting to get extended, investors may not want to build up their exposure substantially. If you’ve gotten deep into margin, you may want to consider backing off, taking some partial profits.
Selling a winning stock into strength or on weakness both have their merits, and there’s no reason you can’t employ both methods.
Investors may want to consider adding exposure to sectors such as travel, which could be ready to lead. Run your screens this weekend and build up your watchlists.
If the market rally does pause or pull back, some leading stocks could form brief consolidations or pull back to key support. So make sure you have capital ready to deploy, yet another reason to take some small winnings now.
Earnings season is off its peak, but it’s not quiet. Meanwhile, Nvidia may lay out its reported metaverse ambitions on Tuesday. Will the actual reality live up to virtual reality hype?
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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