Dow Jones futures fell slightly Sunday night, along with S&P 500 futures and Nasdaq futures. The Bitcoin price plunged over the weekend, with Tesla CEO Elon Musk implying that the EV maker has sold or will sell its remaining holding of the cryptocurrency.
The stock market rally suffered losses last week, with breakouts and key sectors struggling, though the major indexes bounced on Thursday and Friday.
ASML (ASML), Google parent Alphabet (GOOGL), Maravai LifeSciences (MRVI), Goldman Sachs (GS) and Nutrien (NTR) held up well. All five stocks are in buy zones or flashing early entries. But they also boast relative strength lines at or near record highs.
The RS line, which tracks a stock’s performance vs. the S&P 500 index, is a great way to spot the true leaders in any environment, including the current choppy market rally.
The RS line, the blue line in the charts provided, also spots false leaders. Apple (AAPL) regained its 50-day moving average on Friday and showed some other positive technical signals. But the RS line for Apple stock is right at nine-month lows, according to MarketSmith analysis.
Meanwhile, investors don’t need the RS line to spot Tesla (TSLA) as a laggard. Still, it’s helpful to know that while Tesla stock hasn’t quite hit a fresh 2021 low, its RS line has.
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Bitcoin Price Plunges On Musk Tweets
The Bitcoin price on Saturday resumed its decline, falling below $47,000 and undercutting its late April low to the lowest since late February.
Bitcoin rebounded to above $49,600 Sunday morning but reversed sharply lower again, tumbling to a fresh low of $43,837.43. The most-valuable crypto is currently trading just at $45,000. Bitcoin peaked at $64,829.14 on April 16.
Musk implied in a Sunday tweet that Tesla might have sold or will sell its remaining Bitcoin. Last week, Musk said Tesla would not sell more Bitcoin.
Bitcoin already was under pressure as Musk announced late Wednesday that the EV maker would no longer accept the cryptocurrency for vehicle purchases, citing environmental concerns. Bitcoin uses a lot of energy, even compared to other cryptocurrencies.
He also has continued to promote Dogecoin, threatening to go “all in” on the digital asset created as a joke.
Meanwhile, the China Securities Journal called for tighter restrictions on cryptocurrency trading.
Dow Jones Futures Today
Dow Jones futures fell 0.2% vs. fair value. S&P 500 futures lost 0.1% and Nasdaq 100 futures sank 0.1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
In other news, AT&T (T) is in talks to combine its content assets with Discovery (DISCA), according to multiple reports. AT&T, via its Time Warner takeover in 2018, owns CNN, HBO, Cartoon network, TNT, TBS and the Warner Bros. studio. Discovery owns HGTV, TLC and Animal Planet. Both have made big pushes into broad, premium streaming offerings over the past year.
Coronavirus cases worldwide reached 163.70 million. Covid-19 deaths topped 3.39 million.
Coronavirus cases in the U.S. have hit 33.71 million, with deaths above 600,000.
Taiwan announced its toughest coronavirus restrictions yet as cases rise there. That comes on the heels of Singapore closing schools as infections rise there. Taiwan and Singapore were among Asian nations that were able to limit cases by shutting themselves off from the world. But with the global economy opening up, such countries are struggling.
Stock Market Rally Last Week
The stock market rally finished last week on a relative high note, but there were broad-based losses.
The Dow Jones Industrial Average fell 1.1% in last week’s stock market trading. The S&P 500 index retreated 1.4%. The Nasdaq composite slumped 2.3% and the small-cap Russell 2000 2%. But all ended well off their weekly lows.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 3.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) skidded 3.6%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 1.1%. The VanEck Vectors Semiconductor ETF (SMH) slumped 4.2%. ASML stock is a big SMH component.
SPDR S&P Metals & Mining ETF (XME) slipped 1.4% as iron and copper prices came off highs. Global X U.S. Infrastructure Development ETF (PAVE) pulled back 1.2%. U.S. Global Jets ETF (JETS) eked out a 0.4% advance. SPDR S&P Homebuilders ETF (XHB) tumbled 4.4%. The Financial Select Sector SPDR ETF (XLF) edged up 0.3%. Goldman stock is a significant holding.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 4.9% and ARK Genomics ETF (ARKG) 5.3%. Despite solid bounces Friday, both are still well below their 200-day lines. Tesla stock is the No. 1 holding across ARK Invest’s ETFs.
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Stocks Flashing Buy Signals
ASML stock jumped 4% to 647.76 on Friday, breaking a short downtrend and extending Thursday’s rebound from the 50-day line. Shares did fall 1.6% for the week. Unlike most chip-gear rivals, ASML stock only dipped below its 50-day line last week. If ASML can lead a chip-equipment revival, it would be a positive sign for techs and the overall stock market rally.
Google stock slumped 3.3% for the full week. But after falling back to its 50-day/10-week line, the FANG stock rebounded on Thursday and Friday. At 3.2% above the 10-week line, GOOGL stock is still actionable.
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Goldman Sachs stock just undercut its 356.95 buy point from a flat base or shallow cup on Wednesday. But GS stock bounced back on Thursday and Friday, ending the week down 0.55% at 368.77. Goldman Sachs is one of several Dow Jones components in buy zones with strong RS lines.
Nutrien stock rose 2.1% to 60.54 on Friday, paring its weekly loss to 1.4% and regaining a 59.87 cup-base buy point. One of several leading stocks from the strong fertilizer group and healthy agricultural sector, NTR stock has been on a strong uptrend since the March 2020 bottom.
Maravai stock rose 2.1% to 37.93 for the week, masking a typically volatile week in which shares fell as low as 33.53. Maravai makes a compound for the mRNA coronavirus vaccines from Pfizer (PFE) and Moderna (MRNA), but analysts see growth potential beyond the pandemic for this biotech IPO. MRVI stock has a 39.95 handle in a messy consolidation. But at that point, shares would likely look extended relative to the 10-week line. Investors might want to start a position now as MRVI stock breaks a downtrend in its handle.
Apple stock fell 2.1% last week to 127.45, but found support at its 200-day moving average and reclaimed its 50-day line on Friday. It’s not too far from a 137.17 cup-with-handle buy point. An aggressive trader might see AAPL stock as being on the cusp of an early entry from the 50-day line and breaking a downtrend in its handle.
But the RS line for Apple stock is just off 2021 lows, showing that it’s not a leader right now but a false prophet.
If Apple stock is a false prophet, then Tesla stock might be an excommunicated former leader. Shares did manage to reclaim their 200-day line on Friday. But TSLA stock plunged 12% for the week. The RS line for Tesla stock also is at the lowest level since last November.
Tesla stock actually looks better than ARKK or rival EV stocks, but that’s an awfully low bar. Tesla stock needs extensive repair work.
Market Rally Analysis
The stock market rally remains under pressure, but looks much better than on Wednesday, when the Dow Jones and S&P 500 were falling toward their 50-day lines. Both rebounded to close the week above their 21-day exponential moving averages. The Nasdaq and Russell 2000 are still below their 50-day lines, but not too far off.
Friday’s strong price gains came on light market volume.
The four market indexes all closed in the upper half of their ranges. Perhaps this will end up being a support week, but that isn’t always clear until after the fact.
Ultimately, the major indexes closed the week lower, along with many sectors. Breakouts continued to be treacherous.
Again, choppy market rallies are extremely difficult for active investors. Traditionally, waiting for a stock to prove itself via a breakout, following some sort of uptrend, offers the best odds for success. But with the market rally swinging up and down and sectors rotating in and out of favor, buying a few days or weeks into a stock or group move may mean you’re buying near a short-term top. But buying at the first signs of a stock or overall market rebound can lead to almost instant losses as well.
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What To Do Now
Bottom line: Investors should remain cautious. Size your positions relatively small, perhaps starting positions off their 50-day lines, like ASML. Keep your exposure relatively low, spread around a wide array of industries. When screening for stocks, pay close attention to those with relative strength lines at or near highs. That way you can hone in on true leaders like Google stock or ASML, while not being swayed by false prophets such as Apple. Continue to steer clear of highly valued growth stocks like Tesla, unless you have a low-cost basis.
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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