Dow Jones futures rose Sunday night, along with S&P 500 futures and Nasdaq futures, amid several big merger deals and coronavirus vaccine news. The stock market rally is still in force, but it’s livin’ on the edge following a second week of violent selling.
The Nasdaq composite ended last week below its 50-day moving average. Apple (AAPL) and Tesla stock, among the market rally’s big winners, especially in the final weeks to the top, sold off hard. Shopify (SHOP), DocuSign (DOCU) and Microsoft (MSFT) are below their 50-day lines.
The most important element of CANSLIM investing is the M. If the market conditions are not favorable, most stocks will struggle. Without the M, it’s CANSLI. You may be sly and a better man than I, but you’re not smarter than the market.
So here’s what investors should do. Be defensive. Have a correction game plan. And build a watchlist of leading stocks such as Taiwan Semiconductor (TSM), PerkinElmer (PKI), Target (TGT) and Chipotle stock.
Nvidia (NVDA) will acquire wireless chip designer Arm Holdings from SoftBank for $40 billion. U.K.-based Arm designs chips for Apple, Intel (INTC), Samsung and more. An Nvidia-Arm deal will likely face serious antitrust concerns.
China’s ByteDance reportedly has agreed to sell the U.S. operations of TikTok to Oracle (ORCL), though it’s unclear if it’ll structured as an outright sale. Earlier Sunday, Microsoft said Sunday that ByteDance had rejected its bid. ByteDance reportedly decided not to sell the algorithm that drives TikTok results. Oracle supposedly was still open to buying TikTok under that restriction. President Donald Trump has threatened to ban TikTok in the U.S. by mid-September without a deal, though Americans likely could continue to use the service.
Gilead Sciences (GILD) will acquire Immunomedics (IMMU) for about $21 billion, or $88 a share, the companies said Sunday. Immunomedics, which has a breast cancer drug Trodelvy, closed Friday at 42.25.
Apple stock, Tesla (TSLA), Chipotle Mexican Grill (CMG), Nvidia and Microsoft are on IBD Leaderboard. Taiwan Semiconductor stock is on the Leaderboard watchlist. Microsoft stock is on IBD Long-Term Leaders list. Microsoft, Nvidia and PerkinElmer stock are on IBD 50.
Coronavirus cases worldwide have reached 29.17 million. Covid-19 deaths topped 927,000.
Coronavirus cases in the U.S. have hit 6.70 million, with deaths above 198,000.
AstraZeneca (AZN) and Oxford University have restarted their final-stage trial of their coronavirus vaccine. The trial was paused last week after one participant became violently ill. It’s still unclear what the cause was.
Pfizer (PFE) and BioNTech (BNTX) are looking to expand their late-stage coronavirus vaccine trial to 44,000 people, from 30,000. That would allow testing on a more diverse population, including older teens and some Hepatitis B and C sufferers.
The AstraZeneca and Pfizer-BioNTech vaccine candidates are generally seen as furthest along, with Moderna (MRNA) close behind.
Dow Jones Futures
Dow Jones futures rose 0.7% vs. fair value. S&P 500 futures advanced 0.75% and Nasdaq 100 futures climbed 0.9%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. As the past few days have shown, Dow Jones futures are even less predictive during stock market volatility.
Stock Market Last Week
U.S. Stock Market Today Overview
Last Update: 4:12 PM ET 9/11/2020
The stock market rally suffered several three days of heavy selling in a holiday shortened week. Intraday action was even more whipsaw.
The Dow Jones Industrial Average fell 1.7% in last week’s stock market trading. The S&P 500 index retreated 2.5%. The Nasdaq composite tumbled 4.1%.
Apple stock fell 7.4%. Tesla tumbled 11%, though it closed in the upper end of its range. Both are still above their 50-day moving averages.
Microsoft retreated 4.8%, Shopify 6% and DocuSign stock 8.5%, all well below their 50-days.
As for stocks holding up better, Taiwan Semiconductor dipped just 0.1% as it builds a flat base. Chipotle stock slid 1.2% and now has a three-weeks-tight pattern. PerkinElmer actually rose 3%, rebounding from its 10-week line in its flat base, according to MarketSmith analysis. Target stock edged up 0.3%, finding support at its 21-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 2.3% last week. The iShares Expanded Tech-Software Sector ETF (IGV) lost 3.3%, with Microsoft stock a notable holding. The VanEck Vectors Semiconductor ETF (SMH) fell back 3.1%, with Taiwan Semi providing some support and Nvidia stock down 3.6%.
Stock Market Rally Under Pressure
Two weeks ago, the Nasdaq hit the dotted standard-deviation line above a regression line that worked as a de facto channel for the stock market rally. The Nasdaq plunged, but closed the week with a rebound from its 50-day line.
This past Tuesday, the Nasdaq composite fell 4.1%, closing below its 50-day moving average for the first time since April 21, as the stock market rally was just getting above that key level. IBD changed its market direction from “confirmed uptrend” to “uptrend under pressure.”
On Wednesday, stock market bounced back, though in lighter volume. Thursday morning, the Nasdaq rallied to its 21-day exponential moving average but quickly erased gains and fell back to just below its 50-day again. On Friday, the Nasdaq tried to rise but then sold off hard, undercutting Tuesday’s low before paring losses to close slightly above that area. It’s now 10% off its record high. On the regression chart, the Nasdaq is well below the bottom standard-deviation line.
The S&P 500 index came down to its 50-day line Friday but found support.
The stock market rally remains “under pressure,” but the pressure is building. The recent market action has been very negative with most leading stocks coming under heavy pressure and very few doing better than hanging on. The stock market now seems to be living under the 21-day line, which is not positive. The Nasdaq seems on the verge of living below the 50-day line.
So now what? Walk this way and take these three steps.
Hopefully, you’ve taken significant profits near the market top and over the past couple of weeks. If you made recent buys, perhaps on Wednesday or Thursday morning, you may want to cut them loose. As for new buys? Dream on. There’s no real reason to be making any further new purchases.
The near-term upside is limited while the downside risks are elevated.
Game Plan For A Stock Market Correction
We’re not in a stock market correction, but we’re awfully close. You may have a game plan for a pullback, but now you need one for a correction. If you’re heavily invested in a correction, you can’t stop yourself from falling.
If the major indexes and leading stocks continue to fall and we enter a stock market correction, what will you do?
Those “big winners” that you still have from the stock market rally? Which are you willing to hold through a correction? If you think you’ve got a potential all-time great or are holding some Long-Term Leaders, you may need to cut other holdings so you can weather a correction in your true long-term positions. Even for your big winners that you’re “sure” you’re going to hold. What is your line in the sand. If you’re holding onto, say, Apple and Tesla stock, what is your plan if they really break down?
Of course, there’s nothing wrong with going entirely or nearly all in cash. It’s simple and safe. If market conditions improve, you can quickly be back in the saddle again. It even be easier to jump into the next batch of big winners because you’re not “stuck” in old holdings.
Build Your Watchlist
There are still a lot of good-looking stocks out there. A few strong days could dramatically improve the look of many stock charts, though those days may not happen right away. Focus on top stocks with strong or rising relative strength lines, even if they aren’t close to having a buying opportunity right now.
Cast a wide net. Some leaders from the stock market rally may go on new runs. Taiwan Semiconductor, Chipotle and Target stock are setting up again. But many may not, especially if we go into an extended correction. The past is gone. Different sectors may lead going forward. Transports are looking especially strong right now.
And while you’re taking these steps, stay engaged with the market. You don’t want to miss a thing. Be nimble in your thinking and your actions. 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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