Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The major indexes last week reversed lower from key resistance to undercut key support, raising fresh concerns about the stock market rally.
A hot inflation report and fears of an imminent Russia invasion of Ukraine spurred the stock market sell-off late in the week.
President Joe Biden warned Russian President Vladimir Putin of “swift and severe costs” for invading Ukraine in a Saturday phone call. Both countries pulled diplomatic staff out of Ukraine.
Russia is conducting wargames with Belarus through Feb. 20. A Ukraine invasion possibly could follow, though it’s still possible Putin demobilizes.
Russia/Ukraine news is likely to be in focus for stock, bond and energy markets in the coming days.
This is not a good time to be adding exposure.
Low Times For High Growth
For investors used to trading highly valued growth stocks, the new year has been painful. A rising rate environment pressures highly valued stocks, especially those that are unprofitable or have triple-digit price-to-earnings ratios. Dutch Bros (BROS), with a P-E ratio above 200 ,caught the eye of seemingly every growth investor a week ago, but BROS stock reversed sharply lower last week. Tesla (TSLA) has held up better than a lot of these names, but it’s been struggling in 2022. Datadog (DDOG) bounced back last week on earnings, but was that a one-time pop or will DDOG stock make further progress?
Advanced Micro Devices (AMD), while no longer exceptionally valued, still plunged 10% on Friday, leading a sell-off in chips and techs generally. After nearly hitting its 50-day line on Wednesday, AMD stock finished the week just above its 200-day line. It’s more than wiped out its Feb. 2 pop on earnings.
Investors on Monday will get a reading on Tesla’s China sales and exports for January as part of industry data on Chinese EV and overall auto sales.
Meanwhile, Cisco Systems (CSCO) recently made a $20 billion-plus offer for data analytics and security software firm Splunk (SPLK), The Wall Street Journal reported late Friday. The two companies are not currently in talks, the WSJ said, but SPLK stock popped 11% late Friday.
In other news, Canada cleared the last trucker protest demonstrators from Ambassador Bridge, the busiest bridge between the U.S. and Canada. Ford (F), General Motors (GM) and Stellantis (STLA) all closed auto plants late last week, citing supply-chain issues related to various bridge closures.
The video embedded in this article takes a look at the market rally’s highs and lows during the week and analyzes AMD stock, Regeneron and Oneok.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 412.01 million. Covid-19 deaths topped 5.83 million.
Coronavirus cases in the U.S. have hit 79.31 million, with deaths above 943,000.
Covid cases have fallen dramatically in the U.S., with deaths also retreating. More states, including several run by Democratic governors, are ending mask mandates in the near future.
Stock Market Rally
The stock market rally sold off hard to end last week, with the major indexes breaking below key levels.
The Dow Jones Industrial Average fell 1% in last week’s stock market trading. The S&P 500 index sank 1.8%. The Nasdaq composite retreated 2.2%. All had been solidly higher as of Wednesday.
The small-cap Russell 2000 climbed 1.4%, despite skidding late in the week.
The 10-year Treasury yield rose 2.5 basis points last week to 1.955%. But that’s after hitting a 30-month high of 2.06% intraday Friday.
U.S. crude oil prices rose 3.6% on Friday to $93.10 barrel, the highest since 2014. The U.K. urged citizens to leave Ukraine on fears of a Russia invasion. U.S. National Security Advisor Jake Sullivan believes Russia could take offensive military action as soon as this coming week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2.35%. The iShares Expanded Tech-Software Sector ETF (IGV) declined 1.35%. The VanEck Vectors Semiconductor ETF (SMH) sank 2.7%, including a 5.1% tumble on Friday. AMD stock is a big SMH holding.
The SPDR S&P Metals & Mining ETF (XME) spiked 9.35% last week. The Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.4%. U.S. Global Jets (JETS) popped 5.5% amid a broader travel rally. SPDR S&P Homebuilders (XHB) sank 1.2%. The Energy Select SPDR ETF (XLE) advanced 2.1% while the Financial Select SPDR ETF (XLF) lost 1 cent for the week. The Health Care Select Sector SPDR Fund (XLV) fell 1.5%, with UNH stock the ETF’s top holding.
GARP Stocks Near Buy Points
Apple, Google, UnitedHealth, Oneok and REGN stock all offer growth at a reasonable price, with the stocks setting up near buy points.
Apple stock fell 2.2% to 168.64 last week, undercutting its 50-day moving average in a low-volume decline Friday. But the relative strength line only fell slightly from record highs. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
AAPL stock now has a proper base. On a weekly chart, Apple stock has a handle, giving it a 176.75 buy point.
Google stock slumped 6.3% last week, tumbling below its 50-day line and then its 200-day line. Like AMD stock, it has now more than wiped out the Feb. 2 earnings gap-up, in which GOOGL stock briefly broke out and hit a record high of 3030.93. Investors can still use that buy point. But they could buy Google stock as a Long-Term Leader if it rebounds from the 200-day line and reclaims its 50-day line. The RS line for GOOGL stock is close to its recent all-time highs.
UnitedHealth stock fell 1% to 478.13 last week, just above its 50-day line. UNH stock has a shallow cup base with a 509.33 buy point on a daily chart. On a weekly chart, the health insurance giant has a handle, giving it a 501.03 buy point. The RS line is at a record high with shares still in the base, giving UnitedHealth stock a blue dot on a weekly chart.
Oneok stock rose 2.6% last week to 64.51. Shares are moving toward a 66.88 buy point, but OKE stock is in range from a 63.65 early entry. The RS line is already at a 20-month high for the natural-gas play.
REGN stock rose 2.5% to 638.41, reclaiming its 50-day and 10-week lines in strong volume Friday on positive trial data for the biotech giant. The move offered an early entry, with 635.10 as a specific buy point. The official buy point for Regeneron stock is 673.96.
Regeneron earnings skyrocketed in 2021, fueled by a Covid antibody treatment. But Covid cases are waning, while the antibody treatment isn’t effective vs. the omicron variant. Analysts expect Regeneron earnings to fall 39% this year, but that will still be above pre-2021 levels. The RS line for REGN stock has struggled since 2015, but on Friday hit its highest level since late 2020.
Tesla China Sales
Tesla (TSLA) exports the vast majority of its Shanghai-made vehicles in the first half of a quarter, then focuses on local sales. A 30% EV subsidy cut on Jan. 1 might have weighed on local sales.
The Tesla Berlin plant will eventually take care of much of European demand, at least for the Model Y. But the site, supposed to open by the end of 2021, hasn’t yet and may not for at least several weeks. Even when the Berlin and Austin plants finally open, production may ramp up slowly.
While Tesla stock is holding up better than most highly valued stocks, it’s not doing particularly well.
Tesla stock fell 6.9% to 860 last week, hitting resistance near its 21-day moving average. Shares are in a double-bottom base with a 1,208.10 buy point but are trading well below the declining 50-day line.
TSLA stock found support around its 200-day line in late January. A decisive move below the 200-day line and the Jan. 28 low of 792.01 would be a negative signal.
Dutch Bros stock, after pausing for a few days, surged on Monday, Feb. 7, but then reversed lower that day. After tumbling 7.6% on Friday, BROS stock lost 10.3% for the week, approaching its 50-day line again.
Datadog stock shot up 12% on Thursday on strong earnings and guidance, vaulting above its 50-day line. The relative strength line was right at a record high. DDOG now has a base with a 199.78 buy point. It could try to form a handle now. On Friday, shares fell 4.1% to 167.40. But is that the start of a bullish handle or the start of an ugly retreat?
Market Rally Analysis
The stock market rally looked strong through midweek but then had an ugly finish, raising serious doubts about the confirmed uptrend. As of Wednesday, the S&P 500 and Nasdaq composite were coming right up to short-term resistance, while the Dow Jones had actually retaken its 50-day line. Some more stocks were setting up.
But then the CPI inflation report came in hot Thursday sending Treasury yields soaring as investors priced in even more aggressive tightening. The major indexes sold off Thursday. On Friday, Russia invasion fears for Ukraine triggered heavy selling again, except in crude oil and bond prices.
The S&P 500 and Nasdaq undercut the low of their recent range, with the S&P 500 also knifing below its 200-day line. Worse, both indexes undercut the low of their Jan. 31 follow-through days intraday. They managed to close above their FTD lows, but only by a whisker.
Closing below the lows of the FTD is a very bad sign for a stock market rally. A market rally remains in force as long as it’s above its recent bottom, in this case the Jan. 24 intraday lows. But the odds are very high that a rally will fail if it closes below the FTD lows.
A Russia invasion of Ukraine, which could at any time, could roil markets in the coming days, adding a host of geopolitical, energy and supply-chain concerns.
What To Do Now
With the market rally reeling, it’s not a good environment for buying stocks. Energy, fertilizer and oceangoing shippers are among the few pockets of strength, but even there investors should be cautious.
Until the S&P 500 and Nasdaq move decisively above their Feb. 2 highs, investors largely put new buys on hold. The focus now should be on reducing exposure, especially for losing stocks.
Still, as the past two sessions showed, the market environment could change quickly. If the market rebounds in the coming week, perhaps as bond yields or Ukraine tensions ease, then investors will need to adapt. Being flexible is especially important in the current situation.
You always want to be ready to act. So rework your watchlists and stay engaged.
Meanwhile, the Dow Jones fell back below its 50-day line on Thursday and its 200-day line on Friday. The Russell 2000 fell back on Thursday and Friday but did close up for the week, a positive sign for market breadth.
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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