Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. Another attempt at a stock market rally began late last week, closing lows on Thursday and rising again on Friday. But the main indices fell sharply again over the week.
Investors should wait to see if the market rally continues to gain momentum and set up a tracking day to confirm the new uptrend.
Chevron (CVX) and leader in fertilizers CF Industries (CF) are around the first entries, while Albemarle (ALB) and Broadcom (AVGO) still have some work to do. Merck (MRK) did not participate in Friday’s relief rally, but closed for the week and in a buy zone.
Meanwhile, Tesla stocks and Twitter (TWTR) will remain the center of attention. You’re here (TSLA) bounced back on Friday, but still had a rough week. Shares of Twitter sold off last week, particularly on Friday, as Tesla CEO Elon Musk said the deal was “temporarily on hold.”
MRK and CF stocks are on SwingTrader. CF and AVGO stocks are on the IBD 50. CF, Merck and CVX stocks are on the IBD Big Cap 20. CF Industries was Friday’s IBD Stock Of The Day.
The video embedded in this article discussed a volatile market week and analyzed the stocks of Chevron, CF Industries and Albemarle.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET Sunday, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally attempt
The stock market sold off sharply, with major indexes hitting 52-week lows before a strong rally from Thursday’s lows. A nascent attempt at a stock market rally is underway.
The Dow Jones Industrial Average fell another 2.1% in stock trading last week. The S&P 500 index fell 2.4%. The Nasdaq composite fell 2.8%. Small cap Russell 2000 fell 2.5%.
The 10-year Treasury yield fell 19 basis points to 2.93%, even with Friday’s 12 basis point rise. The 10-year Treasury yield hit 3.17% on Monday and 2.82% on Thursday.
U.S. crude oil futures edged up 0.7% for the week to $110.49 a barrel, helped by Friday’s 4.1% jump.
There are growing hopes that the Chinese government will ease lockdowns in Shanghai as Covid cases decline. This would be good news for the stock market, but especially for commodities such as crude oil and copper.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.9%. The iShares Expanded Tech-Software Sector ETF (IGV) also fell 1.9%. ETF VanEck Vectors Semiconductor (SMH) rallied to fall just 0.2%, with AVGO stock a notable component.
The SPDR S&P Metals & Mining ETF (XME) sold 7.8% last week. The Global X US Infrastructure Development ETF (PAVE) slipped 3.4%. The US Global Jets ETF (JETS) fell 6.2%. The SPDR S&P Homebuilders ETF (XHB) edged down 0.1%. ETF Energy Select SPDR (XLE) lost 2.6%, with CVX stock taking a prominent place. The Financial Select SPDR ETF (XLF) fell 3.5%. The SPDR health care sector fund (XLV) lost 0.9%. The MRK stock is a key component of XLV.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) closed down 4.45% last week and ARK Genomics ETF (ARKG) down 1.2%, but rebounded from massive losses at the end of the week. Tesla stock is the top position among Ark Invest’s ETFs.
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Stocks to Watch
Chevron stock fell 1.6% to 167.90 last week, but rebounded from Monday’s 6.7% plunge, closing above its 50-day line. CVX stock has a flat base with a buy point of 174.76. Investors could use a bounce off the 50-day line as an early entry, perhaps using the May 6 high at 170.97 as a specific trigger. The relative strength line is at highs, reflecting the outperformance of Chevron stock versus the S&P 500 index.
CF stock jumped 4% to 103.85 last week, staging a big upside reversal after plunging 9% on Monday. On Friday, the fertilizer maker bounced above its 50-day line and crossed a trendline, offering early entry. But buying in the current market adds risk.
Merck shares fell 0.5% on Friday, leaving behind the big market rebound. But the drug giant rose 2.3% to 90.39 for the week. Notably, MRK stock broke a buy point of 89.58 handle cups.
ALB stock fell 5.6% to 228.02 last week, but found support at its 50-day line on Thursday and recovered to its 200-day line on Friday. Lithium giant Albemarle is in a consolidation that dates back almost six months with an emerging buy point of 291.58. But investors could use 243.28, just above the previous week’s post-earnings high, as an early entry. The 248 level was also a key resistance area. Sociedad Quimica y Minera (SQM) looks even better, on the cusp of an early trendline entry and a rebound from the 50-day line. But SQM, which produces fertilizers as well as lithium, made a profit on Wednesday.
AVGO stock climbed 1.4% to 588.24 last week, finding support at its 200-day line and approaching its 50-day line. Broadcom has a cup base with handle with a buy point of 645.41, according to MarketSmith analysis. But a move above the 50-day line would coincide with the breakout of a downtrend in the large handle, providing an early entry. The RS line for AVGO stock is already at a new high.
Tesla Stocks and Twitter
Tesla stock jumped 5.7% to 769.59 on Friday, continuing to rebound after hitting a 2022 low of 680 on Thursday intraday. But stocks slipped 11.1% for the week. The TSLA stock needs a lot of repair time, with the 50 and 200 day lines among the hurdles.
Tesla shares have come under pressure from the sharp market correction as well as production shutdowns at Shanghai factories. But another factor has been Elon Musk’s plans to take over Twitter. Musk is relying on plenty of funding backed by his holdings of TSLA stock, which is all the more concerning as Tesla’s stock price is falling. However, he tried hard to get other investors to join him.
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But will Musk go ahead with the Twitter deal? Investors have always had doubts. On Friday, Musk said the deal was “temporarily on hold,” although he later said he was “still committed” to the acquisition. Musk cited a Twitter report of fake accounts for his “take,” but the social network has been giving out those numbers for years. Additionally, Musk cited spam accounts as one of the reasons for the Twitter takeover.
Musk could decide to pay a $1 break fee to walk away. Or, he could try to renegotiate the price from $54.20 per share down substantially. If there is no deal, TWTR stock could drop well below 40.
Twitter stock fell 9.7% to 40.70 on Friday, falling below its 50-day line. Shares plunged 18.3% for the week. This is far from the redemption price of TWTR shares. It also means that anyone who has bought TWTR shares since Musk belatedly disclosed a large stake on Twitter is underwater.
Market rally analysis
The stock market enjoyed a long-awaited rebound on Friday, with huge price gains across major indexes. But it was only one day. The sharp decline in volume on both the Nasdaq and the NYSE suggests that much of Friday’s action was short hedging rather than large institutions.
Despite the market’s strong gains from Thursday’s intraday lows, major indices still fell sharply for the week, hitting 52-week lows. The major indices are below their 10-day moving averages, with the 21- and 50-day lines being quite far apart.
Friday marked the second day of an attempted market rally for all major indices. The Nasdaq closed slightly higher on Thursday. The S&P 500 and Dow Jones fell, but closed high enough in their ranges to qualify as “pink” rally days. In a few days, investors might be looking for a trailing day on one or more of the major indices. A trailing day requires a strong price gain in higher volume than in the previous session.
Unsurprisingly, battered stocks led the market for a second consecutive session. But these names are far from being exploitable.
Commodity stocks such as Chevron and CF shares are currently among the best positioned. The EV battery plays the stock ALB and chipmaker Broadcom could be actionable in a few days, maybe an actual tracking day happens.
A few drug manufacturers such as Merck stock and Eli Lily (LLY) are in position, but will these defensive growth stocks be there? On the other hand, if the market continues to struggle, Big Pharma will likely hold up better than most stocks.
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What to do now
If you are a particularly aggressive trader, you could have played Friday’s big bounce. A good option would have been a broad market ETF. But anyone who gets started fast should be prepared to scale even faster.
But Friday was just a good day. Even if you count the Thursday afternoon bounce, the market has been up for just over a session amid relentless selling since early April amid a market correction dating back to early 2022 or earlier.
There is nothing wrong with waiting for a follow-up day. Even if we get an FTD, investors should not increase their exposure quickly.
Build your watchlists this weekend, looking for stocks with strong relative strength and settling into bases or back to key support.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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