Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures. Tesla earnings are headlines for the week ahead.
The stock market rally had a powerful week, with the S&P 500 and Nasdaq composite hitting new 52-week highs. Many stocks offered buying opportunities.
But investors may want to tread carefully in the very near term. The Nasdaq is stretched somewhat, increasing the chances of a pullback. Many stocks that issued buy signals at the weekend retreated on Friday, with the Nasdaq reversing slightly lower. Meanwhile, many other flagship actions are also extended.
Finally, earnings season is a wild card for individual stocks and the broader market.
Nasdaq 100 Rebalancing
On Friday night, the Nasdaq is expected to clarify how an upcoming special rebalancing of the Nasdaq 100 will adjust the weights of its 100 components.
The Magnificent Seven of Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), You’re here (TSLA), parent company of Google Alphabet (GOOGL), Metaplatforms (META) and Amazon.co.uk (AMZN) should see their outsized dominance diminish somewhat.
But this upcoming news hasn’t stopped megacaps from having great weeks, especially Meta stock, Nvidia and Google.
On Friday night, a federal appeals court rejected an FTC bid to stop Microsoft from closing its takeover of ActivisionBlizzard (ATVI). The Nasdaq once said Commercial counter (TTD) will replace ATVI stock in the Nasdaq 100 ahead of Monday’s open.
Meanwhile, Tesla’s second-quarter earnings are expected on Wednesday evening, following strong preliminary results from the Chinese electric vehicle giant. BYD (BYDDF).
Nvidia and Tesla shares are on the leaderboard. Microsoft stock is on IBD’s list of long-term leaders. TSLA stock is on the IBD Big Cap 20.
The video embedded in the article discussed the strong market action this week and analyzed Nvidia’s rival Advanced micro-systems (AMD), Rambus (RMBS) and Eli Lily (THERE IS).
Dow Jones Futures Today
Dow Jones futures open Sunday at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally had a stellar week, as reports of subdued inflation eased Fed rate hike fears and sent Treasury yields and the dollar tumbling.
The Dow Jones Industrial Average rose 2.3% in stock trading last week, hitting a 2023 high and just below a 52-week high. The S&P 500 index jumped 2.4% and the Nasdaq composite jumped 3.3%, both hitting new 52-week highs. This is the Nasdaq’s best weekly gain since late March.
The small-cap Russell 2000 jumped 3.7%.
The Invesco S&P 500 Equal Weight (RSP) ETF climbed 2.4%, in line with the S&P 500.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 3.9%, slightly outpacing the Nasdaq 100’s 3.5% gain.
Equally weighted small cap Russell indices point to the big improvement in market breadth. While the losers easily beat the winners on Friday, the anticipated decline lines have risen significantly over the past couple of weeks as new highs breach new lows.
Executives had a great week, with software and chip stocks at the forefront among new buying opportunities.
However, the Nasdaq is 7.4% above its 50-day line, while the Nasdaq 100 is 8% above this key level. This increases the risk of another market pullback. The Nasdaq could be extended even further, but that would greatly increase the chances of the market pulling back, with a greater likelihood of it being larger.
Friday’s pullback from the highs may reflect the market’s need for a break. Many top stocks have erased gains or reversed lower, but the weekly charts look generally solid.
The 10-year Treasury yield plunged 23 basis points to 3.82%, even with Friday’s 6 basis point gain.
U.S. crude oil futures rose 2.1% to $75.42 a barrel last week but fell 1.9% on Friday.
Copper futures jumped 4.1% for the week.
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Among growth ETFs, the Innovator IBD 50 (FFTY) ETF jumped 3.4% last week. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 5.6%, with MSFT stock a strong component. ETF VanEck Vectors Semiconductor (SMH) jumped 5.3%. Nvidia stock is SMH’s largest holding.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 11.1% last week and ARK Genomics ETF (ARKG) 9.4%. Tesla stock is the top position among Ark Invest’s ETFs. Cathie Wood’s Ark also owns Nvidia and BYD stock.
The SPDR S&P Metals & Mining (XME) ETF rose 2% last week. The Global X US Infrastructure Development ETF (PAVE) gained 2.6%. The US Global Jets ETF (JETS) fell 1.4%. The SPDR S&P Homebuilders ETF (XHB) jumped 7.1%. The Energy Select SPDR ETF (XLE) edged up 0.8% and the Health Care Select Sector SPDR Fund (XLV) climbed 2.1%. The Industrial Select Sector SPDR Fund (XLI) gained 2.3%.
The Financial Select SPDR ETF (XLF) rose 2% and the SPDR S&P Regional Banking ETF (KRE) jumped 4%. Banking ETFs trimmed their weekly gains on Friday, after a number of major financial stocks released.
Five best Chinese stocks to watch now
Analysts expect Tesla’s earnings to show a modest gain from a year earlier. In the second quarter of 2022, the Shanghai plant was closed for several weeks due to Covid, while the Berlin and Austin plants slowly ramped up. Earnings per share could be roughly flat at 85 cents in the first quarter.
Tesla has already reported deliveries of 466,140 electric vehicles in the second quarter, easily beating the sights thanks to ongoing price cuts and incentives. Gross margins in Q2 will be key after falling in Q1 and in recent quarters.
Beyond Tesla’s earnings numbers, investors will want updates on the Cybertruck, which is expected to begin initial production this summer, as well as the upcoming updated Model 3.
Investors will also seek information on a future Mexican factory, which will manufacture Tesla’s next-generation model.
Investors bullish ahead of Tesla earnings. Tesla stock rose 2.5% last week to 281.38, hitting a new intraday high in 2023 on Friday. TSLA stock is up 128% in 2023. Stocks are working on a buy point of 313.80 after deep consolidation dating back to late September.
Meanwhile, Tesla’s arch-rival BYD released preliminary first-half results, signaling second-quarter profit could nearly triple. BYD stock rose 3.7% to 34.53 last week, bouncing off the 21-day and 10-week lines, offering fresh entry.
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What to do now
Traders should have added exposure over the past week and been invested significantly at this point.
Despite all the good news and positive long-term trends, now is not the ideal time to make new purchases. Moreover, the market is expanding again. A modest pullback may not mean much to holdings with a decent cushion, but could quickly put new buys underwater.
Friday’s market action, with major indices erasing modest morning gains, pushed a number of stocks below recent entries. Many of these names still look strong on the weekly charts.
In practice, many stocks are now extended from buy points, such as Nvidia.
Also note that the earnings season is picking up speed, with the potential for sharp swings up and down for individual stocks and sectors as well as the market as a whole.
But investors should keep their watchlists up to date. This is how you spot quality setups so you’re ready to pounce when entries present themselves.
Analyze your portfolio. In which holdings could you take profits and in which would you like to try to add a few more shares?
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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