Dow Jones Futures: Market Rally Wobbles As Tilray Leads Climax Stocks; Bull Case For Tesla Stock Retreat
Dow Jones futures edged higher late Wednesday, along with S&P 500 futures and Nasdaq futures. The stock market rally wobbled Wednesday, reversing lower intraday before closing narrowly mixed.
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The Nasdaq remains somewhat extended, while climax-type stocks Tilray (TLRY), Futu Holdings (FUTU), Digital Turbine (APPS), EXP World Holdings (EXPI) and ExOne (XONE) were big movers Wednesday.
Tesla (TSLA) fell significantly as Bitcoin retreated, but could the electric-vehicle maker be in the early stages of creating a new buying opportunity? As for the Bitcoin price, it fell modestly Wednesday but is still holding onto much of Monday big gain from Tesla’s Bitcoin buy disclosure.
Meanwhile, Nvidia (NVDA) stood out once again, shrugging off the stock market rally’s intraday retreat. After months of lackluster action and one-day pops, Nvidia stock seems to be making a more meaningful move, clearing a flat base Wednesday.
Uber Technologies (UBER), tax software maker Avalara (AVLR), Spirit Airlines (SAVE), real estate info play Zillow (Z) and pet insurer Trupanion (TRUP) were among the notable earnings reports. Avalara stock might test a cup-base buy point on Thursday.
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Big Moves For Wild Stocks
A growing number of stocks are showing climax-type runs. On Wednesday, Tilray stock skyrocketed 51% to 63.91 in massive volume as Reddit investors rush into cannabis stocks. TLRY stock is now 117% above its 10-day moving average. Traditionally 20% was a sign that a stock was likely to have a pullback. In the current market, 40% or more has often been the trigger. But Tilray stock was still rising sharply overnight.
Hong Kong brokerage Futu rallied 7% to 165.24, but came way off an intraday high of 204.25. It’s 36% above its 10-day line. Meanwhile, EXPI stock tumbled 15% to 136.34, nearing its 10-day line intraday. APPS stock sank 3.5% while XONE stock skidded 16.5%.
Tesla stock and Nvidia are on IBD Leaderboard. Nvidia stock is also on SwingTrader.
Dow Jones Futures Today
Dow Jones futures were just above fair value. S&P 500 futures tilted higher and Nasdaq 100 futures rose about 0.1%.
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.
Coronavirus News
Coronavirus cases worldwide reached 107.85 million. Covid-19 deaths topped 2.36 million.
Coronavirus cases in the U.S. have hit 27.89 million, with deaths above 483,000. New coronavirus cases have been below 100,000 for four straight days. Hospitalization levels continue to fall sharply, while deaths also are declining. Vaccinations are continuing, with the likelihood of increased supply and more vaccine options within a few weeks. The big concern is the spread of the more-contagious Covid variant first detected in the U.K.
Stock Market Rally Wednesday
The stock market rally opened higher, fell back and ultimately closed narrowly mixed.
Fed chief Jerome Powell briefly helped buoy stocks Wednesday afternoon as he once again reiterated his support for aggressive monetary policy to support the economy. He says there’s no reason to even think about reining in support until the pandemic is over.
The Dow Jones Industrial Average rose 0.2% in Wednesday’s stock market trading. The S&P 500 index closed fractionally lower. The Nasdaq composite lost 0.25%.
Growth stocks also were mixed.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) dipped 0.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.8%. The iShares Expanded Tech-Software Sector ETF (IGV) edged down 0.3%. The VanEck Vectors Semiconductor ETF (SMH) rose 0.3%, with Nvidia stock a notable component.
Tesla Stock
Tesla stock fell 5.3% to 804.82, undercutting its 21-day exponential moving average. Tesla is retreating after Monday’s slim gain as the EV maker disclosed it bought $1.5 billion worth of Bitcoin. But a pullback or extended pause could give investors something they haven’t had with Tesla stock in nearly three months: a buying opportunity.
Tesla stock is just 4.9% above its 10-week line. If shares could fall to the 10-week or move sideways and wait for the 10-week to catch up, a rebound would offer a chance to start or add to a TSLA stock position. That also could be the start of a new base, with an additional buying opportunity.
But, all of that is hypothetical. Right now, Tesla stock is not at its 10-week line and is not rebounding.
Tesla missed on fourth-quarter earnings after (slightly) missing its 2020 delivery target. EV competition is soaring while chip shortages are a major wild card for Tesla and the entire auto industry.
Setting aside company challenges, Tesla stock has been on a long, huge run going back to the coronavirus crash or even late 2019. It’s quite possible that TSLA stock will take an extended pause or correction. Much of that will have to do with the market.
Nvidia Stock
Nvidia stock rose 3.5% to 590.57, moving above a 587.76 flat-base buy point and clearing the Sept. 2 all-time high, according to MarketSmith analysis. That follows Monday’s 6.2% jump, clearing a 560.07 early entry that might have been the place to start a position.
The relative strength line for Nvidia stock is starting to pick up, but is well off its early November peak. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
Stock Market Rally Analysis
Wednesday’s stock market action was reminiscent of Jan. 25, when the Nasdaq opened at record highs, sold off sharply, but rallied for modest gains. That presaged notable selling later in the week. Wednesday’s action was less volatile, but more growth names had losses like Tesla stock than gains like Nvidia.
As then, the Nasdaq has been extended from the 50-day line. After closing 8.1% above its 50-day line on Monday and 7.9% on Tuesday, the Nasdaq is still 7.4% above that key level.
That means the risk of a stock market rally pullback remains elevated, though it doesn’t have to happen right away or be that fierce.
Still, the Nasdaq is extended, a growing number of stocks are climax-type moves, while investors are increasingly leveraged and more and more novices are jumping into GameStop (GME), Bitcoin or other highly speculative investments. There’s definitely froth in the market right now.
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What To Do Now
Investors may want to consider selling into strength, especially with greatly extended stocks. Don’t suffer losing stocks in this environment. Consider getting off margin.
If the stock market rally has a modest pullback in the near future, you’ll want buying power to take advantage of opportunities as strength returns. If the market rally falls into a correction, you’ll be glad you took some profits near the top.
So have a game plan for your holdings. What will you do if your stocks hit certain levels? If you have an exit strategy in place, you’ll be able to deal with market fluctuations without panic selling or freezing.
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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