The stock market rally is at record highs following positive coronavirus vaccine news. But that masked some wild action beneath the surface. Coronavirus plays such as Zoom Video Communications (ZM) and Peloton Worldwide (PTON) may be on the sick list for some time. But it’s unclear which sectors will take over market leadership.
Real economy stocks could come to the fore, but many are beaten down. Plus, skyrocketing coronavirus cases now complicates that argument that these sectors will see booming demand in the next few months.
And, in the here and now, there are not many good-looking set-ups. Many stocks that are doing well, such as Caterpillar (CAT), Pinduoduo (PDD), Palantir (PLTR), and especially Nio (Nio) are well-extended from buy points.
Investors have some work to do this weekend.
Here are a few stocks to consider. Google parent Alphabet (GOOGL) and Applied Materials (AMAT) are holding in buy zones, while Exact Sciences (EXAS) just formed a three-weeks-tight. Microsoft (MSFT) has just formed a proper handle in its consolidation. Visa (V) is closing to forming a handle after trying to break out.
Dow Jones futures will begin trading at 6 p.m. ET Sunday, along with S&P 500 futures and Nasdaq 100 futures.
JD.com Earnings Due
Chinese e-commerce giant JD.com (JD) kicks off earnings Monday morning. Analysts expect JD.com earnings per share to jump 41% to 41 cents a share. Revenue is seen swelling 36% to $25.67 billion, the second straight quarter of accelerating growth.
JD.com stock is just below record highs. Arguably it’s just above a buy zone, but that’s after plunging below its buy point early last week before staging a recovery. In theory, an aggressive investor might have held her nose and bought JD.com stock as it crossed back into the buy zone, But Monday’s earnings report added that much extra risk.
JD.com stock is on IBD Leaderboard.
Coronavirus Vaccine News
Meanwhile, more coronavirus vaccine news could be on the way. Pfizer (PFE) and BioNTech (BNTX), are likely to release key safety data for their coronavirus vaccine in the coming week after announcing last Monday that it was more than 90% effective. Assuming the vaccine clears that hurdle, an FDA emergency use application would quickly follow.
Moderna (MRNA) will be in focus. The biotech has begun an interim analysis of its final-stage coronavirus vaccine trial, with news possible in the next few days. Expectations are high that its Covid vaccine candidate will be about as effective as the Pfizer vaccine.
If all goes well, millions of Americans could get coronavirus vaccinations before year-end. Vaccinations would accelerate in early 2021, especially if several other coronavirus vaccine candidates win approval. That includes Johnson & Johnson (JNJ), which got additional government funding to help with its late-stage coronavirus vaccine study.
BioNTech stock is consolidating just above a buy zone after Monday’s big spike. Moderna stock also raced past a buy zone. Pfizer stock broke out Monday morning, but never closed in buy range.
Coronavirus cases worldwide reached 54.31 million. Covid-19 deaths topped 1.31 million.
Coronavirus cases in the U.S. have hit 11.22 million, with deaths above 251,000. New coronavirus cases hit a record 183,527 on Friday. Covid cases topped 157,000 on Saturday. Oregon, New Mexico and New York City have imposed significant restrictions, with the Big Apple poised to cancel in-person schooling as soon as Monday. Even without government orders, surging coronavirus cases are spurring more social distancing,
But in the short run, coronavirus cases look likely to continue accelerating. Deaths are rising, but well off their spring peaks. However, hospitalizations are at record levels and rising fast, overloading many systems. That could mean more seriously ill patients don’t get the proper care, which has improved substantially since the spring and helped reduce death rates.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:04 PM ET 11/13/2020
The stock market rally looked fine from the perspective of the major indexes.
The Dow Jones Industrial Average jumped 4.1% in last week’s stock market trading. The S&P 500 index gained 2.2%. The Nasdaq composite lost 0.55%, but recovered from Tuesday intraday lows.
While there were big gains for the likes of Boeing, Caterpillar, Pinduoduo and others, vaccine news slammed coronavirus plays last week.
Zoom Video stock tumbled 19%, plunging through its 10-week line on a big jump in volume. Peloton stock did same, crashing 20%. Those moves are strong sell signals for longer-term investors.
Many cloud software names and U.S. e-commerce firms, such as Amazon.com (AMZN), Shopify (SHOP) and Zscaler (ZS), also were hard hit. Amazon stock slid 5.5%, but is only slightly below its 10-week line. Shopify and Zscaler stock both skidded 12%.
Growth stocks fared poorly overall last week. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 4.8%, though that includes Monday’s 6.6% plunge. The iShares Expanded Tech-Software Sector ETF (IGV) sank 4%. The VanEck Vectors Semiconductor ETF (SMH) edged down 0.4%, as Taiwan Semiconductor (TSM) and several chip-gear makers such as Applied Materials rallied, offsetting bad weeks for AMD (AMD) and Nvidia (NVDA).
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Stock Market Analysis
On IBD Live we like to say that we try to try interpret the market, not predict the market. Fair to say the past two weeks of market action would have been hard to predict.
Right now, the stock market rally is hard to interpret. The major indexes look strong, with the Dow Jones and S&P 500 right at highs. The Nasdaq had a bit of a shakeout but is just off all-time highs.
But what do investors do with this market?
It’s unclear which stocks and sectors will lead. Zoom Video seems like it’s going to take some time to recovery. But with the U.S. likely to add one million coronavirus cases in just the next week, post-pandemic plays also face headwinds.
One idea is to look for stocks that have done relatively well in the coronavirus pandemic and should keep doing well going forward. Google and Microsoft seem possible candidates, while Applied Materials and other chip-gear names are prospering. Data-center chip makers are struggling, but Apple (AAPL) chipmakers such as Qualcomm (QCOM) and Taiwan Semiconductor are faring better.
Many Chinese stocks are doing well, though often they are extended, have volatile charts or have earnings due — with JD.com stock qualifying for all three.
Finally, relatively few stocks are in or near buy zones.
Several stocks have had big gains over the past couple of weeks and are simply extended. Meanwhile, many others are extended, damaged or breaking down.
Top Stocks In, Near Buy Zones
Google stock is within range of its 1,726.20 buy point from a cup base. The relative strength line for GOOGL stock has quietly been trending higher since mid-2019 and especially over the past month. The RS line tracks a stock’s performance vs. the S&P 500 index.
AMAT stock is just above a 70 entry, according to MarketSmith analysis. Applied Materials earnings and revenue growth have been accelerating for several quarters, with a 56% EPS gain reported last week. But AMAT stock follows several over chip-gear makers that already broke out with stronger RS line.
Exact Sciences stock has held up well since gapping higher on quarterly results in late October. The three-weeks-tight entry officially is 142, just above the Oct. 27 peak. But that’s far above the bulk of the tight pattern. Investors might use 128.56 as a more-reasonable entry.
Microsoft stock tried to break out Monday morning past a resistance point but reversed lower. It now has a handle from last week’s action with a 228.22 buy point. The RS line for MSFT stock has been trending gradually lower for the past four months, but after a strong run.
Visa stock, a Dow Jones component like Microsoft, also tiptoed past a buy point Monday before paring gains. Shares still rose more than 6% last week on hopes that a coronavirus vaccine will spur economic recovery, increased travel and cross-border payments. Visa stock needs another day to form a handle on a daily chart. Whether investors could use either the left-hand side or the soon-to-be-handle for your buy point, but it won’t make much difference: 217.45 or 217.75.
Visa archrival Mastercard (MA) has a similar pattern developing, but its RS line has been a little weaker.
What To Do Now
Evaluate your stocks. You might have tossed some in the past week. But you may need to take action on others that are struggling. You also might consider taking at least partial profits on some winners that are greatly extended from moving averages, such as Nio. Nio stock, which has earnings due this week, is 70% above its 50-day line even after Friday’s negative reversal.
You may have stocks that are surging, such as Pinduoduo, are holding up after big gains such as Qualcomm. No need to do anything there.
Watchlists may see a lot of turnover. Look for stocks with strong relative strength. Give a little slack on recent earnings for “real economy” stocks that took big hits in 2020 from the pandemic. They may see a big recovery in 2021.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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