Market Rally Holds Key Levels, But This Has Been Difficult; Tesla Woes Continue

 

The stock market rally generally lost ground this past week, but the major indexes found support at key levels. However, many promising stocks pulled back shortly after crossing buy points. Investors should follow some rules for the current trading environment, from keeping exposure light to taking partial profits.




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Vertex Pharmaceuticals (VRTX), Charles Schwab (SCHW), Excelerate Energy (EE) and CALX stock are actionable, while Celsius (CELH) is setting up.

Vertex and CELH stock are on the IBD 50 list. VRTX stock also is on the IBD Big Cap 20. Calix (CALX) was Friday’s IBD Stock Of The Day, with Excelerate Energy and SCHW stock selected earlier in the week.

One stock that is not holding up well is Tesla (TSLA). Tesla stock plunged this past week, breaking to fresh bear-market lows on Friday.


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Stock Market Rally

Outside of the Dow, the stock market rally showed modest losses following the prior week’s big gains, though there was a not-insignificant retreat from Tuesday’s highs to Thursday’s lows.

The Dow Jones Industrial Average eked out a fractional gain in last week’s stock market trading. The S&P 500 index fell 0.7%. The Nasdaq composite sank 1.5%. The small-cap Russell 2000 gave up 1.7%.

The 10-year Treasury yield rose 1 basis point to 3.82% after tumbling to 3.69% on Wednesday.

U.S. crude oil futures plunged 10% last week to $80.08 a barrel. China’s zero-Covid signals and hawkish Fed comments raised demand concerns. Natural gas prices gained 7.2%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slipped 1.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) edged down 0.2%.  The iShares Expanded Tech-Software Sector ETF (IGV) slumped 3.55%, with cloud software names hit hard. The VanEck Vectors Semiconductor ETF (SMH) retreated 0.65%, hitting resistance at the 200-day line.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) plunged 9.5% last week and ARK Genomics ETF (ARKG) dived 11.1%. TSLA stock is a major holding across Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) slipped 1.9% last week. The Global X U.S. Infrastructure Development ETF (PAVE) slipped 0.1%. U.S. Global Jets ETF (JETS) descended 2.9%. SPDR S&P Homebuilders ETF (XHB) retreated 3%. The Energy Select SPDR ETF (XLE) lost 1.6% and the Financial Select SPDR ETF (XLF) fell 1.4%. The Health Care Select Sector SPDR Fund (XLV) rose 0.9%. VRTX is part of the XLV fund.


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Stocks Near Buy Points

VRTX stock rose 3.75% to 314.63 this past week, reclaiming a 306.05 buy point from a flat base, part of a base-on-base formation. The biotech plunged intraday on Nov. 11, as medical stocks came under pressure, but slashed losses. The relative strength line is off recent highs but has shown steady progress all year. Vertex earnings growth remains strong.

SCHW stock popped 2.45% on Friday to 79.81, breaking the downtrend of a handle, offering an early entry. The official buy point is 81.18 from a deep, nine-month cup-with-handle base. However, the handle also formed just above a bottoming base entry of 77.51.

EE stock rose 2.7% to 27.17 on Friday, also breaking the downtrend of a handle. The April IPO has a 28.49 official cup-with-handle buy point, according to MarketSmith analysis.

CALX stock jumped 6.6% to 69.82 on Friday, rebounding bullishly from a pullback to the 21-day moving average. That pullback followed an earnings gap-up after several weeks of tight trading. Calix earnings are still declining, but government funding for rural broadband is expected to drive future growth.

Celsius stock rose 3.9% to 96.99 last week, but reversed lower on Friday. That could be good news. The energy drink maker has a 118.29 consolidation buy point. A pause here could offer a lower entry, though it’s too low to be a proper handle. The 50-day line is still sliding for CELH stock but the 10-day and 21-day lines are crossing above that key level.

Tesla Stock

Tesla stock tumbled just over 8% to 180.19 last week, skidding to a fresh bear-market low of 176.55 on Friday. That followed declines of 5.5% and 9.2% in the prior two weeks, continuing a sharp slide since late September.

It’s a tough environment for aggressive growth stocks, especially EV makers. Tesla has some demand concerns as production swells and competition heats up. It’s cut prices in China, with more cuts likely as subsidies end on Dec. 31. Meanwhile, the “Twitter circus” remains a concern. CEO Elon Musk’s chaotic reign in just three weeks risks damaging the Tesla brand.

Tesla is still growing at a strong clip, while new U.S. subsidies should bolster demand at home in 2023.

But TSLA stock has gone on multiyear stretches of going sideways or down. So while the EV giant could rev higher again, investors should wait for the chart to set up again. That could take a long time.


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Market Rally Analysis

The stock market rally had a down week. After the prior week’s big CPI-fueled surged, the indexes initially rose, but then pulled back from Tuesday’s highs, testing key levels on Thursday. But stocks rebounded modestly from Thursday’s lows.

A market pause wasn’t a big surprise given the sharp recent gains, and with the S&P 500 index approaching its 200-day line. Holding support areas is a positive, while the Nasdaq’s 21-day line is about to cross above the 50-day. Assuming the indexes hold those levels and eventually move higher, this would be a constructive week for the major indexes.

But it was a frustrating week for leading stocks. A decent number of stocks broke or flashed buy signals early in the week. But with the indexes pulling back, many of those names quickly reversed back below entries. Some may quickly rebound or set up soon, but that will likely depend on the market.

Energy stocks had a rough week as crude prices tumbled, though LNG play EE stock is an exception.

Medical stocks, which came under pressure with defensive growth names, rebounded this week. That includes VRTX stock as well as many biotechs and health insurers.

Networking firms such as Calix, some financials like Schwab, as well as building materials and a number of sectors are still looking interesting.

Aggressive growth did not have a good week. That includes Tesla stock, cloud software and ARK-type names. CELH stock was an exception.


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Investing Rules For This Market Rally

Investors should always have sound trading rules. But the current tricky market rally means investors should emphasize light, flexible trading. Here are seven guidelines.

Keep Exposure Light: This is not a mad bull market. Investors should be taking part in this rally, but it’s not a time for being on margin.

Add Exposure Gradually: Don’t ramp up exposure quickly. Buying a bunch of stocks on, say, Tuesday, would have created quick losses from the resulting market pullback. Let the market gradually draw you in.

Look For Early Entries: Breakouts have struggled in 2022, in part due to choppy markets and sector rotation. By the time a stock reaches a traditional buy point, especially from a deep base, it may be due for a pullback. Early entries offer a chance to get into promising stocks before the mini run pauses.

Take Partial Profits: Given the up-and-down nature of the current uptrend, investors should consider taking partial profits quickly. This can give you the confidence to let the remaining position ride. Know the character of your holdings. Some stocks are more prone to big volatile moves, with partial profits especially important.

Know Your Line In The Sand: You should enter a trade knowing where you’ll get out, either entirely or scaling out. If the stock advances, you could move up your stops.

Diversity Of Leadership: While it’s a good idea to focus on a small number of holdings, don’t get too concentrated in a particular sector or theme. Sector rotation has hit defensive, defensive growth and growth stocks in turn over the past several days. Try to acquire leading stocks from diverse backgrounds.

Be Prepared: If you want to buy the best stocks, at early entries, you need to do your homework. Work on screens to build up your watchlists. Focus in on specific names that are “ready” or nearly so, but also have a broad list of quality stocks that are starting to set up.

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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