Dow Jones futures rose modestly Monday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally had a generally positive week, with the Nasdaq and small caps leading the way.
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But with the major indexes at resistance levels following strong recent gains, the market rally showed resilience amid some mixed headlines. Monolithic Power Systems (MPWR) and KLA (KLAC) lead several hot chipmakers to watch. Keep an eye on Apple (AAPL) and Tesla (TSLA) as well.
Dow Jones Futures Today
Dow Jones futures rose 0.4% vs. fair value. S&P 500 futures climbed 0.45% and Nasdaq 100 futures advanced 0.6%.
The 10-year Treasury yield fell 4 basis points to 2.8%.
Crude oil prices fell nearly 2%.
The Senate approved the tax-spending-climate legislation Sunday with Vice President Kamala Harris breaking the 50-50 tie. The House will likely take up the package, which includes green energy incentives, expanded ObamaCare subsidies, some drug price controls and tax hikes, in a few days.
Palantir Technologies (PLTR) reported an adjusted loss of 1 cent a share vs. views for a small gain. Revenue narrowly topped. But the data analytics firms gave weak guidance. PLTR stock fell more than 10%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Merger Buzz
Pfizer will buy Global Blood Therapeutics (GBT) for $5.4 billion, or $68.50 a share. GBT stock, up 95% last week on buyout buzz, rose 4% to above 66 early Monday.
Vista Equity will buy tax-software firm Avalara (AVLR) for $8.4 billion, or $93.50 a share. That’s below AVLR stock’s Friday close of 95.55.
CVS Health (CVS) is planning a bid for Signify Health (SGFY), looking to expand into home-health services, the Wall Street Journal reported over the weekend. SGFY stock tumbled premarket.
Stocks To Watch
Chip stocks are rebounding, a positive sign for any market rally. Monolithic Power Systems, KLA, Analog Devices (ADI), Axcelis Technologies (ACLS) and Onsemi (ON) are running up, but are currently in no man’s land, extended from early entries but below traditional buy points.
Apple is perhaps still in range of an early entry, but investors might want to wait to see if AAPL stock can forge a handle.
Tesla stock sold off on Friday, but the EV giant needs to take a break. Meanwhile, the California DMV has accused the EV giant false advertising in promoting Autopilot and Full Self-Driving.
Finally, Celsius (CELH) got a heat check after huge gains in recent days and weeks. What should investors do with CELH stock with earnings on tap Tuesday?
MPWR stock is on IBD Long-Term Leaders. KLAC stock is on the Long-Term Leaders watchlist. CELH stock, Axcelis Technologies, Onsemi, KLA and Monolithic Power all are on the IBD 50. ADI stock, Onsemi and Monolithic Power are on the IBD Big Cap 20. ACLS stock was Friday’s IBD Stock Of The Day. Monolithic Power and ON stock were Stock Of The Day earlier in the week.
The video embedded in this article discussed the market action and analyzed Vertex Pharmaceuticals (VRTX), EQT (EQT) and ACLS stock.
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Berkshire Earnings
Berkshire Hathaway (BRKB) operating earnings rose 39% vs. a year earlier to $9.28 billion, the company reported Saturday. But Warren Buffett’s conglomerate suffered a net loss of $43.8 billion. That reflects a $53 billion loss in investments, amid the plunging stock market that bottomed in June.
Berkshire bought back just $1 billion in its own stock in Q2, down from $3.2 billion in Q1. Instead, Berkshire has been loading up on Occidental Petroleum (OXY).
Buffett’s firm still had $105.4 billion in cash at the end of June vs. $106.3 billion at the end of March.
BRKB stock fell 2.8% last week to 292.07, trading between its 200-day and 50-day lines. Berkshire stock has rebounded from its June lows but is still well off its late March peak of 362.10.
BRKB stock rose a fraction Monday morning.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The Dow Jones Industrial Average edged down 0.1% in last week’s stock market trading. The S&P 500 index rose 0.4%. The Nasdaq composite popped 2.15%. The small-cap Russell 2000 advanced 1.9%.
The 10-year Treasury yield leapt 20 basis points to 2.84%, including 16 basis points on Friday following the hot jobs report. The odds of a 75-basis-point Fed rate hike on Sept. 21 rose to two-thirds from about 40% ahead of the employment data.
Fed Governor Michelle Bowman said Saturday that she supports similar rate hikes to the 75-basis-point moves of the past two weeks until “we see inflation declining in a consistent, meaningful, and lasting way.”
U.S. crude oil futures plunged 9.7% for the week to $89.01 a barrel, hitting their lowest levels since before Russia’s Ukraine invasion in late February.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) bounced 2.9% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.7%. The VanEck Vectors Semiconductor ETF (SMH) gained 2.7%.
SPDR S&P Metals & Mining ETF (XME) climbed 0.5% last week. The Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.15%. U.S. Global Jets ETF (JETS) ascended 3.2%. SPDR S&P Homebuilders ETF (XHB) nudged 0.2% higher, its seventh straight weekly advance. The Energy Select SPDR ETF (XLE) plunged 6.8% and the Financial Select SPDR ETF (XLF) dipped 0.1%. The Health Care Select Sector SPDR Fund (XLV) retreated 0.7%, despite the strength in biotechs.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) raced nearly 11% higher last week and ARK Genomics ETF (ARKG) 10.5%. Tesla stock remains a major holding across Ark Invest’s ETFs.
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Chip Stocks
Monolithic Power stock surged nearly 15% to 532.33 last week on strong earnings. Perhaps investors could have bought MPWR stock on the Aug. 2 earnings gap, as it cleared some other resistance areas. But as of Friday’s close, Monolithic stock was 17% above its 200-day line and 24% above its 50-day line. The relative strength line is already at a high, signaling MPWR stock’s outperformance vs. the S&P 500 index. The stock does have a 580.10 buy point from the consolidation going back to late November. But ideally, shares would pause and form a handle. That would offer a lower entry as well as let the moving averages catch up some ground.
It’s the same story for Axcelis, Onsemi and KLAC stock, all of which reported earnings in the past two weeks, and are now extended from moving averages but below traditional breakouts. ADI stock is much the same, though Analog Devices earnings are on tap Aug. 17.
Apple Stock
Apple stock rose 1.75% to 165.35, its fifth straight weekly gain. Investors could have bought AAPL stock as it cleared the 200-day line on July 29 following earnings. At 3.7% above the 200-day line, it’s still arguably actionable as an early entry. Apple is the only megacap trading above its 200-day line.
The RS line for Apple stock is at highs already. The official buy point is 183.04, but a handle, at current levels or a little higher, would be appealing.
Tesla Stock
Tesla stock sank 6.6% to 864.51 on Friday, down 3% for the week as it erased much of a seven-day winning streak. That also pushed shares back below the 200-day line. But if TSLA stock can pause for a few days around current levels, then getting above Thursday’s high of 940.82 could offer an aggressive entry. It would be too low for a traditional handle.
At Tesla’s annual meeting Thursday night shareholders approved a 3-for-1 stock split, a long expected move. The actual split will take place Aug. 5. At the annual meeting, CEO Elon Musk spoke at length on Tesla’s prospects, but didn’t say anything dramatic. Elon Musk’s ongoing Twitter saga could be weighing on TSLA stock.
Legal experts say Twitter (TWTR) has a strong case that Musk should have to go ahead with his $54.20-a-share takeover deal. The Musk-Twitter trial will take place in October. Amid the latest legal filings, TWTR stock rose 3.6% to 42.52 on Friday, reclaiming the 200-day line and hitting its best levels in nearly three months.
Meanwhile, the California Department of Motor Vehicles on July 28 accused the EV giant of misleading customers about the capabilities of Autopilot and FSD, according to filings first reported on by the Los Angeles Times Friday evening. But if the state DMV wins its action, it’ll likely only require Tesla to modify its advertising and marketing.
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Celsius Stock
Celsius stock has been on a huge tear since it blasted above its 200-day line on July 5. News broke on Aug. 1 that PepsiCo (PEP) was taking a big CELH stake and would be the lead distributor for the energy drink maker.
On Friday, CELH stock tumbled 9% to 98.62, though it bounced off its 10-day line and still leapt nearly 11% for the week. Celsius will move up from the small-cap S&P 600 to the S&P MidCap 400. But fewer mutual funds and ETFs track the midcap fund vs the S&P 600, so the upshot is that fewer index funds may own CELH stock. Also, energy drink leader Monster Beverage (MNST) gapped down 5% Friday on weak earnings.
Celsius earnings are due Tuesday, so investors have decisions to make. If you bought CELH stock near the 200-day or resistance around 72, then you still have plenty of cushion. You could choose to lock in some partial profits. For those who bought extended, say on Monday’s Pepsi news, you could have little cushion or be sitting on a loss heading into results. Celsius stock tends to move a lot on earnings.
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Market Rally Analysis
It was a mixed week for the stock market rally. Growth stocks and small caps led the way while the Dow Jones and S&P 500 were little changed
But given the deluge of earnings and a red-hot jobs report signaling big Fed rate hikes for longer, the market rally could have sold off hard late last week after stocks ran up to resistance levels. But they paused, at most. Friday’s action in particular was encouraging.
The Nasdaq is above its early June highs, but is coming up to a trendline starting from the beginning of the year. The Russell 2000 is right at its early June highs while the S&P 500 and Dow Jones are still working on that key level.
A longer pause or modest pullback would be healthy. The market rally has run up a long way, with most of the advance coming on relatively light volume.
Meanwhile, a lot of leading stocks or potential leaders could use a breather. The major indexes pausing or pulling back would offer an opportunity for the likes of Monolithic Power and Onsemi to forge handles, creating lower entries and letting moving averages catch up.
The same goes for Apple stock, Tesla and many others.
Market leadership is broadening out. Biotechs, chips, aerospace/defense, solar, steel and energy, just to name a few, are showing strength.
These are encouraging signs. But this could still be a bear market rally that eventually runs out of steam.
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What To Do Now
Investors should be playing this market, but not for all the marbles. There are still reasons to be cautious about the current market. At any given time, not many stocks are flashing buy signals, while shakeouts and sector rotations can make holding onto positions difficult.
So add exposure carefully. There’s still an argument for taking some partial profits.
Build up your watchlists. Make sure to cast a wide net so you spot potential leaders from a variety of sectors.
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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