Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally finished last week little changed amid earnings from Apple stock, Tesla (TSLA) and hundreds more. It was a tough week for buying stocks.
But it was a constructive week for many stocks.
Five stocks near buy points with bullish pullbacks.
Apple, Nvidia, Idexx Labs and Tesla stock retreated last week, but may come out the better for it. Cloudflare stock did post a weekly gain, but had a healthy pullback later in the week.
Apple stock and Tesla had earnings last week, while Idexx and NET stock are on tap this coming week. Nvidia earnings aren’t for a few more weeks.
Meanwhile, Tesla rival Nio (NIO) reported April sales on Saturday, with Xpeng Motors (XPEV) and Li Auto (LI) out on Sunday. Byd Co. (BYDDF) is expect to release April sales in the next few days. These EV startups face increasing competition from Tesla, one another and traditional automakers such as Volkswagen (VWAGY), as well as the chip shortage crippling automakers worldwide.
It’ll also be interesting to see if Tesla suffers lost China sales from customer complaints, widely discussed by state media in recent weeks. Meanwhile, the Tesla Berlin plant reportedly may not be finished until 2022.
Dow Jones Futures Today
Dow Jones futures will open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 153.36 million. Covid-19 deaths topped 3.21 million.
Coronavirus cases in the U.S. have hit 33.16 million, with deaths above 590,000.
Stock Market Rally
The stock market rally started last week strong and ended on a low note, but ultimately didn’t move that much.
The Dow Jones Industrial Average sank 0.5% in last week’s stock market trading. The S&P 500 index edged up 0.1%. The Nasdaq composite and Russell 2000 retreated 0.4%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.15%, including a 3.3% drop from Tuesday’s intraday high. The Innovator IBD Breakout Opportunities ETF (BOUT) retreated 1.35%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 1.9%. The VanEck Vectors Semiconductor ETF (SMH) tumbled 2.5%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) retreated 2.4% and ARK Genomics ETF (ARKG) 0.8%. But that was after both ARK ETFs jumped more than 3% on Monday, making short-lived moves above their 50-day lines.
Apple stock broke out from a cup-with-handle base at Thursday’s morning following a strong earnings report but quickly reversed lower. Shares fell modestly on Friday. In truth, the handle in Apple’s base was tiny, very short and just 3% deep. There was no handle on a weekly chart. So while technically accurate, the handle likely shook out very few weak holders.
Now Apple stock has a handle on a weekly chart with a 137.17 buy point, according to MarketSmith analysis. Admittedly, it’s only 4% deep, but shares closed at 131.46, their lowest level since April 8. AAPL stock also finished just below the 21-day exponential moving average for the first time since the end of March. A handle on a daily chart will take a few days.
Apple earnings shot up 119% in the latest quarter with sales surging 54%. Both accelerated rapidly for a second straight quarter.
Warren Buffett, speaking at the Berkshire Hathaway annual meeting Saturday, said selling a tiny slice (3.7%) of Berkshire’s Apple stake was “probably a mistake.” Apple stock is his firm’s biggest holding by far. Buffett added that Apple stock is a “huge, huge bargain.
Nvidia stock broke out from a cup base on April 13, racing up for a few weeks to clear the 615 buy point. Two days later it reached 648.57, but then began to pull back. Over the past two weeks, NVDA stock has been trading above or below the buy point, closing Friday at 600.38. But it’s also been finding support just above a rising 21-day line.
Now Nvidia appears to have a high handle, with a 648.67 entry. Investors could still use 615 as an entry. Another option is to draw a short trend line from the April 15 peak. That would provide an entry close to the original 615 entry.
Nvidia earnings growth is stellar, with revenue gains accelerating for the last three quarters, to 61% in the latest period. Nvidia is due to report again in late May.
Idexx stock dipped 1.8% last week to 548.99, forging a 561.62 handle on its cup base. While only 3% deep, Idexx Labs’ handle appears on both a daily and weekly chart. Getting a handle on this cup base is especially important because IDXX stock had run up over four weeks on rather weak volume. If a stock is going to move up the right side of a base with tepid trading, a shakeout is important.
The veterinary products maker reports on Tuesday. Earnings have picked up, rising 56% and 43% in the last two quarters. Sales have climbed 19% in each of those quarters.
Cloudflare stock cleared a too-low handle on April 23 in heavy volume, providing an early entry back into this 2020 winner. NET stock hit 88.04 on April 27, then pulled back slightly for three straight days. Cloudflare doesn’t have a handle on a daily or weekly chart, though it could have one on a daily chart after Tuesday. Until then, the official buy point is 95.87.
Ideally, Cloudflare stock would form a handle, then break out after reporting earnings on Thursday.
NET stock is not yet profitable, but per-share losses are slim. Revenue growth has been strong and steady, coming at 48%-54% over the last eight quarters.
Tesla stock fell 2.7% last week to 709.44, but the EV giant had significant daily moves. After rising on Monday, TSLA stock fell more than 8% over the next three days after earnings, undercutting the still-falling 50-day line. On Friday, shares rebounded 4.8%.
Tesla stock still has a 780.89 cup-with-handle buy point. But last week’s move provided more of a shakeout, especially on a weekly chart. Aggressive traders could use a downward-sloping trend line, either from the top of the base or the top of the handle — they’ll both end up about the same.
Tesla earnings surged 304% vs. a year earlier, with revenue growth accelerating to 74%. Easy comparisons vs. Q1 2020, as the coronavirus crisis hit China and the U.S. and when the Shanghai plant was just ramping up. The EV maker did beat views. However, Tesla earnings relied heavily on regulatory credits and Bitcoin sales.
Tesla didn’t change its 2021 delivery targets and didn’t provide updates on when the Cybertruck might be released. The revamped Model S will start production soon, but volume output of the S and X vehicles won’t kick until the third quarter.
Tesla Berlin Plan Delayed
Meanwhile, the Tesla Berlin plant won’t be finished until at least January, the German weekly Automobilwoche reported Sunday, citing company sources. It cited regulatory approval delays, in part due to Tesla conducting work without the necessary permits. Delays to a battery plant are also a factor. Tesla originally planned to open the Berlin facility on July 1, 2021. In last week’s earnings release, Tesla said the plant should begin production before year-end.
A Berlin plant is expected to lower costs for Europe, while introducing the Model Y to the region for the first time. But it will also raise questions about where much of Fremont’s Model 3 production will go.
Nio reported April sales of 7,102, up 125% vs. a year earlier but down 2.1% from March. The company sold 3,163 ES6 SUVs, 2,416 EC6 crossovers and 1,523 of the larger ES8 SUV. Last week Nio reported mixed Q1 results and said Q2 deliveries would be roughly flat vs. Q1 amid chip shortages that are plaguing the auto industry.
Li Auto sold 5,539 Li One SUVs in April, up 111% vs. a year earlier and 13% vs. March. The Li One is a hybrid, with a tiny gas engine as a range extender.
Xpeng sold 5,147 EVs, up 285% vs. April 2020 but less than 1% vs. March. That includes 2,995 P7 sedans and 2,152 G3 small SUVs. Xpeng will release a smaller car, the P5 later this year.
Byd Co., among the very biggest EV makers in China and a major battery producer, will release April sales soon.
Tesla doesn’t release monthly China sales data, but later this month industry data will do so. That’ll give an early look at whether the negative attention from state media is taking a toll on Tesla demand in China.
Competition is growing in the China EV market. Tesla is ramping up its made-in-China Model Y production, competing with the Nio ES6 crossover. The much-cheaper Volkswagen ID.4 is now on sale in China, while the Ford (F) Mustang Mach-E is taking pre-orders as production begins there. General Motors (GM) and other auto giants are ramping up their China EV plans as well. Meanwhile, Nio, Xpeng, Li Auto, Byd and several other local EV makers are ramping up their own output.
So there’s a question of whether China’s EV supply will outstrip demand.
Nio stock rallied Friday following earnings but still fell 3% for the week, in part due to Ford’s big production warning on chip shortages. Nio stock has been hitting resistance at its fast-falling 50-day line, though it’s found support at its 200-day. Xpeng stock and Li Auto are still falling, below their 50-day lines. BYD stock has undercut its 200-day. All of these stocks need a lot of work before investors should consider them again.
Market Rally Analysis
The stock market rally weathered a huge week for earnings. The six-biggest companies in the S&P 500 by market cap all reported.
While the major indexes didn’t have big weekly moves, it wasn’t a great week to buy stocks.
The S&P 500 and Nasdaq 500 briefly hit record highs at Thursday’s open, thanks to Apple and some other megacaps. But many growth and leading stocks peaked on Monday or Tuesday. So did the FFTY, SMH, IGV and ARKK ETFs.
Anyone making buys on Monday or Tuesday likely was sitting on losses by Friday.
But the week’s overall action, including the weak finish, could be healthy. The S&P 500 is 4.5% above its 50-day line, offering a little room before looking extended. The Nasdaq composite has edged lower around record highs for two straight weeks. The FFTY ETF appears to be forming a handle, drifting lower in light volume. The Nasdaq and FFTY reflects growth stocks forging buy points as well, including Apple and IDXX stock.
What To Do Now
If you bought stocks early last week, you may be sitting on losses. What’s your exit strategy? Do you need to cut some loose on Monday morning or do you have a line in the sand?
This has definitely been a stock market rally where you don’t want to rapidly increase exposure. Sector rotations and a sometimes-choppy overall market have punished such behavior. This has been a time to add incrementally, but being ready to pull back, either as a portfolio strategy or from cutting individual stocks.
This past week shows you have to have a plan going into earnings. But is it a good plan? Keep a record of your investment decisions on when you hold, cash out or take partial profits heading into earnings, along with the cushion you had. Did your rules generally work? Did you follow your rules or did you make ad hoc decisions each time.
Next week will very busy for earnings. Earnings results will matter less for a sector or overall market. That’s partly because many of the giants have already reported. But it’s also because after several stocks in a group have reported, the next earnings report is just less meaningful for other companies. The Apple and Skyworks earnings reports hit iPhone chipmakers on Friday. But when Qorvo (QRVO) reports this coming week, QRVO will react, but the group probably will have a muted reaction.
Meanwhile, a lot of stocks have been setting up over the past few weeks. Pay close attention to stocks on your watch list with earnings on tap. Be ready to take advantage. In an environment where breakouts frequently reverse lower, taking a position close to the buy point — or early entries — is important.
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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