Dow Jones futures will begin trading Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally continued last week, with broad-based gains and many leaders delivering powerful gains, including Qualcomm stock, CrowdStrike (CRWD), Advanced Micro Devices (AMD) and, to a lesser extent, Apple (AAPL).
CrowdStrike stock, Qualcomm (QCOM) are greatly extended. AMD stock is slightly extended, but could drift back into buy range or form a high handle.
Apple, CrowdStrike and AMD stock are on IBD Leaderboard. Qualcomm stock, Google, AMD and FedEx are on SwingTrader. PayPal stock is an IBD Long-Term Leader. Etsy stock, AMD and PayPal are on the IBD 50.
While there are a number of reasons to be positive about the market rally, there are also some troubling signs. Investors should weigh the pros and cons for the stock market rally outlook.
Dow Jones Futures Today
Dow Jones futures were open for trading at 6 p.m. ET Sunday. S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 66.67 million. Covid-19 deaths topped 1.53 million.
Coronavirus cases in the U.S. have hit 14.90 million, with deaths above 289,000. Newly reported Covid cases topped 235,000 on Friday, yet another record high.
Stock Market Rally Last Week
Last Update: 4:06 PM ET 12/4/2020
The stock market rally had another strong performance, buoyed by stimulus deal talk, coronavirus vaccine progress and
The Dow Jones Industrial Average rose 1% in last week's stock market trading. The S&P 500 index climbed 1.7%. The Nasdaq composite advanced 2.1%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) advanced 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) was up just 0.6%. While there were soaring software stocks last week, IGV is dominated by big-cap software names that were generally lackluster, while Salesforce.com (CRM) was a notable drag. The VanEck Vectors Semiconductor ETF (SMH) vaulted 6.3%.
Apple Stock In Buy Range
Apple rose 4.65% last week to 122.25. AAPL stock cleared a downward-sloping trend line as it rebounded from its 50-day line, offering an aggressive entry. Apple stock also topped a 122.09 early entry. Another early entry is 125.49. The official buy point for AAPL stock is 138.08. The relative strength line for Apple stock is showing a little improvement, but has been trending lower since early September. But that follows a strong rise since January 2019, reflecting an impressive run of outperformance vs. the S&P 500 index for AAPL stock.
Google stock is slightly extended from a cup-base buy point of 1,726.20, but it's just above a short consolidation right above that base. This entry is 1,816.99. Google stock climbed 2.1% last week to 1,823.76.
FedEx stock rose 2.6% last week to 294.48, moving above a 293.40 buy point. Investors could have used a rebound from the 10-week line to get an early entry into FDX stock in the prior couple of weeks.
PayPal stock rallied 3% to 217.77, above a 215.93 buy point from a short consolidation next to a prior base. That followed a 9.7% spike in the prior week, offering some early entries for PYPL stock.
Etsy stock fell 3.4% last week, but pared losses to finish at 155.63, just above the 154.98 buy point, according to MarketSmith analysis. That followed a 14.6% surge in the prior week, offering multiple early entries as well. Etsy stock could be forming a short consolidation right about the buy point, much like Google stock did.
Stock Market Rally Pros
Last week was the second straight week of solid or strong gains for the stock market rally. The Dow Jones, S&P 500 index and Nasdaq composite, finished at the top of their weekly ranges.
The stock market rally is showing breadth. Software, chips, IPOs are all doing well, as well as some medical products companies. But real economy names such as Caterpillar (CAT) and Boeing (BA) are booming.
Finally, where the market rally is showing breadth, leading stocks continue to outperform, with several new breakouts in the past week.
All of those reasons suggest that the stock market rally is in good health, with the prospect for further gains.
Stock Market Rally Cons
There's a point on a ladder where it's still relatively safe, but if you take one more step up, you're suddenly in a precarious spot. The stock market rally doesn't look extended on the major indexes right now, but it's getting close. Right now the Nasdaq is 6.5% above its 10-week line. That's not too worrisome, but if the Nasdaq becomes more extended, the risks of a pullback will rise, with a greater danger than the pullback will be short.
Apple stock's weekly gain aside and Google's generally solid performance, big-cap techs have been generally lackluster. If those giants get on a roll, the stock market rally will look overheated in a hurry.
Meanwhile, bullish sentiment in the market rally is already worrisome. The bulls vs. bears measure of investment newsletters' sentiment is at the highest since early 2018. It's at levels associated with at least short-term tops. Other psychological indicators, such as the put/call ratio and the CBOE Volatility Index also point to growing complacency. Greed and complacency don't spike the way fear does, so high levels of bullishness can continue for some time before a stock market rally falters.
Finally, many segments of the market are showing some froth. Many IPOs, many in the software space have skyrocketed over the last several weeks. There also many other leading stocks that have seen sizeable gains in the last couple of weeks and are now well above their 10-week lines, including Qualcomm stock and some other Apple chipmakers such as Qorvo (QRVO) and Taiwan Semiconductor (TSM). While not necessarily extended, the broader trend raises questions about how much further growth stocks can rise.
One positive note is that some frothy niches have been correcting relatively normally, and without a broad market sell-off. Chinese EV makers Nio (NIO), Li Auto (LI) and Xpeng Motors (XPEV) all tumbled 20% or more last week. Recent IPOs Palantir (PLTR) and Corsair Gaming (CRSR), which recently were more than 50% above their 10-day moving averages, have come back without breaking apart or triggering a wider sell-off. So far, there hasn't been a day when growth stocks suffer 5% losses broadly.
What You Should Do Now
Review your stocks, especially your winners. Make sure they're not too extended. Are you overexposed overall or in a particular sector? If you bought hot software or IPO names, those capital gains might be boosting your exposure to a specific sector, leaving you vulnerable to a targeted market sell-off.
More broadly, for the past several weeks it's been easy for investors to make money. That can be a signal to be cautious.
While this article discussed near-term reasons to be bullish or bearish about the stock market rally, the market is going to do what it's going to do. Don't try to guess what stocks are going to do. What you can do is pay attention to what the market is doing right now, and prepare accordingly.
At some point, whether it's next week or next year, the stock market rally is going to have a retreat. That doesn't necessarily mean the end of the rally. But investors should be ready to deal with a short-term pullback or a longer-lasting correction.
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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