The Nasdaq is having its best week since March, but don't do that

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures.




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The stock market rally had a huge week, with the Nasdaq boasting its best weekly gain since March. Major indexes rose on Thursday after the Fed’s favorable inflation report. On Friday, the move out of defensive names intensified, with many medical metrics and other defensive or defensive growth plays falling sharply.

Although opportunities to buy leading stocks are limited, investors should aim to add exposure gradually.

Arista Networks (NETWORK), Clean storage (PSTG), Mobileye (MBLY), Shift4Payments (FOUR) and Flex (FLEX) are technology companies with steady growth but reasonable valuations. Flex and recent IPO MBLY stocks are in traditional buy zones. FOUR stocks have emerged aggressively as Arista Networks and Pure Storage adjust.

Shares of Arista Networks and MBLY are at IBD Ranking Watch List. PSTG and Flex shares are at IBD 50. ANET shares are on IBD Big hat 20.

The video embedded in this article discusses and analyzes a key week for the market rally Cygna (CI), Flex and MBLY shares.

Megacap Shares

Megacap shares rallied strongly last week, but from lows or near bear market bottoms. An apple (AAPL) and Microsoft (MSFT) recovered their 50-day moving averages.

One big laggard is Tesla shares, which hit a two-year low last week. Tesla (TSLA) has been under pressure since CEO Elon Musk’s wild start to own Twitter. Meanwhile, concerns about demand in China are growing. Over the weekend there were rumors of another price cut in China following the October 24 price cut and the recent return of insurance subsidies.

A giant of graphics chips and data centers Nvidia (NVDA) tops a still-active earnings season. Nvidia’s strong earnings and guidance, along with results from the semiconductor equipment maker Applied materials (AMAT), the chip recovery could continue, a positive sign for the market rally. Shares of NVDA have rallied strongly over the past four weeks, but are still well below their 200-day line.

Bitcoin price

The price of bitcoin was trading below $17,000 on Saturday morning, relatively stable since Friday morning, but fell sharply for the week after hitting a two-year low of $15,554.48 on Wednesday. Cryptocurrency exchange FTX, seen as the industry’s white knight just a few months ago, suddenly collapsed with a bankruptcy filing shortly before the stock market’s opening bell on Friday.

The FTX fiasco, following several crypto industry meltdowns earlier this year, is heightening confidence concerns even as the underlying value of cryptocurrencies falls.

Dow Jones futures today

Dow Jones futures open at 6 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.


Join IBD’s experts as they analyze active stocks on IBD Live’s stock market rally


Stock market rallies

The stock market rally has been weak since midweek, but picked up on Thursday thanks to a cooler-than-expected inflation report. China eased Covid restrictions on Friday, providing a fresh boost to stocks and commodities.

The Dow Jones Industrial Average gained 4.15% last week Exchange Trading. The S&P 500 jumped 5.9%. The Nasdaq Composite jumped 8.1%. The small-cap Russell 2000 jumped 4.6%.

Apple shares, which hit their worst close in nearly four months on Wednesday, jumped to close with an 8.2% weekly gain. AAPL has moved above its 50-day line but is below its 200-day, where it hit resistance in late October. Microsoft shares rose 11.6% back above their 50-day line after hitting bearish lows on Nov. 3.

Tesla shares fell 5.5% to 195.97, but rebounded from Wednesday’s two-year low of 177.12. Expanded stimulus for China, following recent price cuts there, is fueling demand concerns. But the chaotic start to Musk’s tenure at Twitter may be the biggest drag on TSLA stock. That includes Musk’s new Tesla stock sales and more ephemeral concerns that the “Twitter circus” is damaging the Tesla brand.

Nvidia jumped 15.3% last week to 163.27, its fourth straight weekly advance and one of three double-digit gains.

The yield on 10-year government bonds fell 33 basis points to 3.81%. Markets strongly expect a 50-basis-point Fed rate hike in December and favor a quarter-point move in February.

The US dollar tumbled, suffering its worst weekly loss in years, reflecting falling yields.

U.S. crude futures fell 3.9 percent to $88.96 a barrel, despite Friday’s rebound.

ETFs

Avg the best ETFsiShares Expanded Tech-Software Sector ETF (IGV) jumped 12.35% for the week, with MSFT shares a major component. VanEck Vectors Semiconductor ETF (SMH) jumped 15.4%, jumping above the 50-day line and approaching the 200-day. NVDA stock is a key holding.

SPDR S&P Metals & Mining ETF (XME) jumped 3.9% last week. Global X US Infrastructure Development ETF (PAVING) rose by 5.4%. US Global Jets ETF (STREAMS) rose 5.6%, its sixth straight weekly gain. SPDR S&P Homebuilders ETF (XHB) jumped 12.1%. Energy Select SPDR ETF (XLE) rose 1.95%, right at highs. and the Financial Select SPDR ETF (XLF) jumped 5.8%. Select Healthcare Sector SPDR Fund (XLV) rose 1.75%, despite Friday’s decline.

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) reversed from a five-year low to gain 14.6% last week and the ARK Genomics ETF (ARKG) jumped 11.4%. TSLA stock remains a major holding in Ark Invest’s ETF.


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Growth stocks near buy points

Arista Networks’ earnings and sales accelerated for four straight quarters, up 69% and 57%, respectively, in the third quarter. ANET shares fell 1.9% to 128.55 last week, but after two big weekly gains on high volume. Arista shares have a high entry level of 133.80 on the August 18 consolidation. ANET stock price to earnings ratio is 32.

Shares of PSTG rose 1.45% to 30.78 last week. Investors could use 31.62 as a point of purchase or early entry either from a consolidation going back to August 18 or from a cup base with handle starting at the end of March. Pure Storage’s profits rose 129% last quarter on a 30% increase in revenue. PSTG stock has a PE ratio of 27.

Shares of MBLY jumped 15.7% in the past week to 29.95, clearing 29.86 IPO base point of purchase. Mobileye, which offers driver assistance systems, went public in late October at $21 a share, above the official range but well below the owner’s estimate Intel (INTC) hoped. Mobileye’s profits rose 36% last quarter, with revenue up 41%. MBLY stock has a PE of 48.

FOUR shares jumped 17.8% to 47.30, but after a turbulent week. Shift4 payments turned sharply lower on Monday after earnings, but then roared back for the rest of the week. On Friday, Shift4 shares retook the 200-day line and broke the trend line. FOUR shares have a 51.52 low buy basis, according to MarketSmith analysis. Shift4’s profits rose 69% and revenue 45%, both accelerating from the previous quarter. FOUR stock has a PE of 45.

Shares of FLEX rose 5% in the past week to 20.18, closing within a 19.73 buy point range. The stock is clearing a short base but also a long consolidation dating back to early 2021. FLEX’s earnings rose 31% in its fiscal second quarter on revenue growth of 25%, both accelerating for a third straight quarter. Flex is part of the highly rated Electronic-Contract Manufacturing Group.


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Market Rally Analysis

The stock market rally had a pivotal week. Already under pressure, the uptrend struggled with some notable losses on Wednesday that pushed the S&P 500 below its 50-day line.

But Thursday’s CPI inflation report was a game-changer, signaling a slower rate hike by the Fed and perhaps a lower peak rate. Major indexes burst higher as government bond yields and the U.S. dollar tumbled. The Dow Jones climbed back above its 200-day line, while the S&P 500 and later the Nasdaq surpassed their 50-day lines and October highs. The Russell 2000 broke above its 50-day and 200-day lines.

All this action pushed the market rally back into a “confirmed uptrend”.

Meanwhile, active stocks are hard to find. Many of the big winners have been failed megacaps like Apple and Microsoft shares, as well as battered cloud software. On the other hand, defensive and defensive names that lead the way suddenly found themselves under pressure. This includes many doctors in pharmaceuticals, health insurers and drug distributors. Defense contractors, auto parts retailers, restaurants, discounters and food manufacturers also suffered losses.

Even outside of that space, there were some nasty reversals in stocks, including CF Industries (CF) and Enphase Energy (ENPH).

Construction products, network stocks and many energy plays are doing well. Few traditional automakers, not Tesla, are showing strength. Several steel stocks are doing well, while miners are now moving higher.

Chip names are also recovering, but most, like Nvidia stock, have a long way to go. Solar and medical products have some interesting names.


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What should we do now

The stock market rally revives with positive inflation news providing a tailwind. There seems to be a rotation from defensive stocks to growth, but active stocks are quite limited.

Investors should look to add exposure, but there’s no need to rush. With so few stocks flashing buy signals so far, there will be plenty of opportunity if the market’s rally holds.

One option is to buy a broad market or sector ETF until more promising individual names emerge. Even then, keep exposure modest, letting the market pull you over time.

While adding exposure, be careful not to concentrate too much on a particular sector.

But create those watch lists. Interesting stocks are being created as growth names return. You want to be ready to buy the best names when they break out.

Read it The big picture every day to stay in sync with 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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