Dow Jones futures rose Monday morning, along with S&P 500 futures and Nasdaq futures, amid central bank action and easing coronavirus shutdowns. The Dow Jones and other major indexes lost ground last week, but it was a quietly bullish period for the coronavirus stock market rally. Apple stock carved out a handle buy point last week. On Friday, Tesla stock, AMD stock, Microsoft stock, Alibaba stock, Nvidia stock and Adobe stock completed new handles.
Stock Market Trek Into Darkness
It’s a mammoth week for earnings. Earnings season is always a confusing time, but this one is especially murky. So many companies and industries shut down the bulk of their operations due to the coronavirus. How can companies or analysts be expected to predict what earnings will be like in the second quarter, let alone for the full year?
Apple (AAPL), Microsoft (MSFT), AMD (AMD) and Tesla (TSLA) all are on deck, with AMD earnings likely influencing Nvidia stock. That makes buying any breakouts for those stocks ahead of that big news especially dicey. Nvidia (NVDA)reports May 21. Alibaba (BABA) will likely report in mid-May while Adobe (ADBE) doesn’t release results until June).
Get A Handle On Top Stocks
Handles offer a buying opportunity, typically at a lower price. They serve to shake out weak holders just before a breakout, making such moves more likely to succeed.
A proper handle must be at least five days long on a daily chart or one week long on a weekly chart, but they can last several weeks. A valid handle forms in the upper half of a base. It should be flat to downward-sloping to encourage weak holders to get out. Ideally, the selling should be modest in price and volume, signaling little institutional selling. Sometimes they are wilder, especially in volatile markets.
Apple stock, AMD stock, Tesla stock, Nvidia stock, Alibaba stock and Adobe stock have all formed cup-with-handle bases. Microsoft stock has a double-bottom base with a handle.
AMD stock, Nvidia stock, Adobe stock and Microsoft stocks are all on IBD Leaderboard. Microsoft stock, Adobe stock and Alibaba stock are all IBD Long-Term Leaders. Apple stock and Adobe stock are on SwingTrader. ADBE stock, NVDA stock and MSFT stock are on IBD 50.
Most of these stocks are up modestly in the premarket.
Dow Jones Futures Today
Dow Jones futures rose 0.9% vs. fair value. S&P 500 futures climbed 1% while Nasdaq 100 futures advanced 1.2%. In the past few weeks, Dow Jones futures have been less volatile, but significant gains and losses are not unusual.
The Bank of Japan pledged to buy unlimited government bonds to support the economy, echoing the Federal Reserve. The Federal Reserve and European Central Bank, which has also stepped up stimulus during the coronavirus crisis, both meet this week.
Meanwhile, several European countries and U.S. states taking gradual steps to ease coronavirus business shutdowns also is boosting Dow Jones futures.
U.S. crude oil futures fell sharply overnight, amid continued concerns about domestic storage space as demand tumbles.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the coronavirus stock market rally on IBD Live.
Coronavirus cases worldwide are just above three million. Covid-19 deaths have reached 207,000.
Coronavirus cases in the U.S. are at least 987,000, with deaths above 55,000.
New U.S. cases have picked up again, but that reflects another upsurge in coronavirus testing uncovering infections. The share of positive tests has fallen to 11% vs. 16% a week earlier, signaling that states are missing fewer infections than before. However, many experts argue that coronavirus testing needs to increase substantially more, with track-and-trace programs in place, before the country can safely reopen.
Several states are already opening up businesses gradually, along with several other countries. That could gradually bring that the global economy from a massive recession. But if it reignites coronavirus infections, that likely won’t show up for a few weeks. New York Gov. Andrew Cuomo began discussing a phased-in reopening for his state, perhaps starting May 15.
Meanwhile, keep an eye on Brazil, Mexico and India. These big countries adding a lot of confirmed coronavirus cases despite very low testing. Actual infections are likely much higher.
As States Reopen For Business, Hold Your Breath
Coronavirus Stock Market Rally
Last week was constructive for the coronavirus stock market rally, despite being in the red. The Dow Jones Industrial Average retreated 1.9%, the S&P 500 index 1.3% and the Nasdaq composite 0.15%. AAPL stock and MSFT stock are members of the the Dow Jones, S&P 500 and Nasdaq.
Not every day or week is going to be up, even in a stock market rally. Despite turning in weekly losses, all the major indexes finished the week strong, retaking key levels.
The Nasdaq composite, which is clearly leading the coronavirus stock market rally, undercut its 50-day and 200-day lines on Tuesday but quickly recovered. The S&P 500 index fell back below its 50-day on Monday but moved back above it on Friday. The Dow Jones today is still below its 50-day line, but did close just above its 10-week line.
The stock market indexes all formed handles last week. That’s why many growth names, from Apple stock to Tesla stock, etched out handles. Even the very best stocks will tend to follow the market.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.05%, with Microsoft stock and Adobe stock major weights. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.15%, with AMD stock and Nvidia stock losing less than 1%. The KraneShares CSI China Internet ETF (KWEB), with Alibaba stock as a major holding, lost 2%.
Stock Market Update: Get A Handle On The Coronavirus Bull Market
Last week Apple stock edged up less than 0.1% to 282.97, reclaiming its 50-day moving average. AAPL stock has a 288.35 buy point, according to MarketSmith analysis. The relative strength line for Apple stock is near highs. The RS line, the blue line in the charts provided, reflects a stock’s performance vs. the S&P 500 index.
Apple stock was Thursday’s IBD Stock Of The Day.
Apple earnings are due late Thursday. Analysts see Apple earnings falling 7% to $2.28 a share with revenue down 6% to $54.79 billion.
Analysts will be looking for guidance about possible delays to an upcoming 5G iPhone. Production of new Apple iPhones, including 5G models, will be delayed by a month, the Wall Street Journal reported Monday, echoing some other reports and estimates.
Tesla stock fell 3.8% last week to 725.15, after two huge weekly gains. TSLA stock now has a handle with a 775.05 buy point. The V-shaped cup base for Tesla stock is extremely deep — 64% — even making allowances for the severe market crash. On the plus side, the RS line for TSLA stock is just below record highs.
The Tesla earnings report is due late Wednesday. Analysts expect a per-share loss of 26 cents vs. $2.90 a year earlier. Revenue should rise 36% to $6.16 billion. Tesla deliveries beat lowered first-quarter estimates. Wall Street will want to know Tesla’s revised production and delivery forecasts for 2020.
The company had expected to deliver over 500,000 electric vehicles in 2020, with production above that. But the coronavirus crisis has forced Tesla’s main plant in Fremont, California, to shut down since late March. The Shanghai plant is ramping up output for the China market. Even when the Tesla Fremont plant is back online, what kind of demand will there be for luxury electric vehicles as the U.S. and Europe face severe recessions. Keep in mind that Tesla revenue was already plunging in the U.S. in late 2019, while European sales may have peaked in the first quarter as EV competition heats up there.
In contrast to data center chipmakers AMD and Nvidia, software makers Microsoft and Adobe and e-commerce giant Alibaba, Tesla and Apple aren’t particularly well-suited for the coronavirus crisis. Covid-19 cases and shutdowns disrupt production, interfere with sales. At least in Tesla’s case, stay-at-home means the car is going to be in the garage. A severe global recession and surging unemployment isn’t good news for high-priced discretionary consumer goods.
AMD stock dipped 0.7% to 56.18, though that included Tuesday’s 7.1% tumble. While it’s preferable to see modest declines in handles, the upside is that there’s no doubt that AMD stock had a shakeout. On a weekly chart, AMD stock has a handle buy point with a 58.73 entry. On a daily chart, AMD stock does not yet have a handle, so the buy point is 59.37. After Monday, it’ll have a handle with that 58.73 trigger point.
AMD stock was Wednesday’s Stock Of The day.
AMD earnings are due late Tuesday. Analysts expect AMD earnings per share to triple to 18 cents a share with revenue up 40% to $1.78 billion over year.
Nvidia stock slipped 0.9% to 289.59, even with Tuesday’s 6.1% sell-off. That move pushed NVDA stock below a 275.50 handle buy point, but it quickly recovered. Nvidia stock ended the week just extended from that handle. However, NVDA stock now has a new handle, creating an alternate entry of 299.10.
Microsoft stock fell 2.3% for the week to 174.55. As a result, MSFT stock fell below a 175.10 double-bottom buy point cleared in the prior week. Microsoft stock also undercut an early entry of 170.10, but quickly recovered that. As a result of last week’s move, MSFT stock has created handle on its double-bottom base with a 180.10 entry. That seems like the most relevant resistance area, though Microsoft stock has been butting up against the 175 area.
Microsoft earnings are due late Wednesday. Wall Street expects fiscal Q3 EPS to rise 12% to $1.28 a share, on sales of $33.93 billion, up 11%. Investors will want to know about its work-for-home offerings, including Microsoft Teams, as well as cloud-computing services such as Azure.
Alibaba stock fell 2.45% last week to 204.36, continuing to slide Friday as Chinese internets pulled back. On Monday, BABA stock briefly cleared a downward-sloping trend line that offered an early entry. Monday’s peak began the start of a handle, now with a traditional 216.20 buy point.
With China first to suffer a coronavirus crisis and the first to try to get its economy back on track, Chinese e-commerce plays initially seemed poised to be leaders of the coronavirus stock market rally. But while Alibaba stock outperformed during the market crash, its relative strength line has lagged somewhat during the coronavirus market rally.
In a chart pattern that looks a lot like Apple stock, Adobe stock undercut its 50-day line last week but rebounded to close down 1 penny at 340.10. ADBE stock has a 350.48 buy point.
Adobe stock was Friday’s Stock Of The Day.
In addition to Apple, Microsoft, AMD and Tesla stock dozens of notable companies are on this week’s earnings calendar, including Facebook (FB), Google (GOOGL), Amazon.com (AMZN), Boeing, Atlassian (TEAM), Visa (V), Mastercard (MA), Exxon Mobil (XOM), Vertex Pharmaceuticals (VRTX), ServiceNow (NOW) and Teladoc Health (TDOC).
The earnings, guidance and share price action of top stocks will be a key driver for the coronavirus stock market rally. 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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