Dow Jones Futures: No Crystal Ball For Uncertain Market Rally

Dow Jones futures fell slightly Sunday night, along with S&P 500 futures. Nasdaq futures rose modestly with Treasury yields retreating. The stock market rally had a modestly down week, but the Nasdaq showed the most technical damage.

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Cathie Wood’s ARK Invest set a new $3,000 price target on Tesla (TSLA), far above any other Wall Street analyst, as Volkswagen (VWAGY) began China deliveries of its ID.4 crossover.

Facebook (FB), U.S. Steel (X), Wayfair (W), Google parent Alphabet (GOOGL) and Apple supplier Qorvo (QRVO) are among notable stocks near buy points.

Canadian Pacific Railway (CP) agreed to buy Kansas City Southern (KSU) for $25 billion, or $275 a share, in a cash-and-stock deal. That’s a 23% premium to KSU stock’s Friday close.

While investing can get complicated, there are some simple concepts too. You want to invest when the stock market is living above its 21-day exponential moving average and 50-day line. That goes for the major indexes as well as the leading stocks. Right now the stock market is deeply split: The Dow Jones and S&P 500 are living above those levels while the Nasdaq is not.

The split market rally is especially difficult to make progress in.

Facebook stock, Dick’s Sporting Goods (DKS) and Element Solutions (ESI) are above buy points or early entries. Meanwhile, Google stock, Qorvo, U.S. Steel and Wayfair are near buy points.

Google and Dick’s stock are on IBD Leaderboard. Wayfair stock is on the IBD 50.

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Dow Jones Futures Today

Dow Jones futures fell 0.25% vs fair value. S&P 500 futures sank 0.2%. Nasdaq 100 futures rose 0.3%.

The 10-year Treasury yield fell 4 basis points to 1.69%.

Turkey’s lira plunged after President Recep Tayyip Erdogan’s surprise move to oust central bank Gov. Naci Agbal after five months. Turkey’s central bank hiked its key rate by 200 basis points on Thursday, more than expected. Erdogan has argued that higher interest rates spur inflation rather than reining it in.

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 stock market rally on IBD Live.

Coronavirus News

Coronavirus cases worldwide reached 123.85 million. Covid-19 deaths topped 2.72 million.

Coronavirus cases in the U.S. have hit 30.52 million, with deaths above 555,000.

Stock Market Rally Last Week

The stock market rally looked promising early in the week, with the Dow Jones and S&P 500 hitting new highs and the Nasdaq above its 50-day moving average. But late in the week, with Treasury yields soaring and crude oil prices tumbling, the major indexes erased gains and then some.

The Dow Jones Industrial Average dipped 0.5% in last week’s stock market trading. The S&P 500 index retreated 0.8%, but held above its 21- and 50-day lines. The Nasdaq composite lost 0.8%, but Thursday’s 3% tumble pushed it below the 21-day and 50-day lines.

The 10-year Treasury yield rose 12 basis points to 1.73%, with nearly all of that on Thursday.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 0.5% last week while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 1%, but both held above their 50-day lines. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 2.5%, falling further from its 50-day. The VanEck Vectors Semiconductor ETF (SMH) rose 1.2%, but was unable to hold above its 50-day. Qorvo stock is part of SMH.

Reflecting more-speculative story stocks, ARK Innovation ETF sank 3.1% last week and ARK Genomics ETF 1%, both hitting resistance at their 21-day lines. Tesla stock is the top holding across ARK’s ETFs.

ARK’s $3,000 Tesla Stock Price Target

Late Friday, Cathie Wood’s Ark Investments put out a $3,000 price target on Tesla. That includes a $1,500 bear case and $4,000 bull case. In the base scenario, Tesla sells five million cars by 2025, up from just below 500,000 in 2020. EV revenue would skyrocket to $234 billion.

To reach that target, Tesla would need a major increase in auto plants. But, in ARK’s model, the company wouldn’t need any more working capital.

Ark now sees a 50% chance that Tesla will have fully autonomous driving in five years. That would open the door for a vast, highly profitable robotaxi network, in Ark’s scenario. Wood, almost as much as Elon Musk, has consistently overestimated Tesla’s self-driving capabilities and timeline.

Tesla is now testing FSD Beta on public city streets with untrained drivers. But it’s told regulators that Full Self Driving will remain a Level 2 system even after FSD Beta is released broadly. That means a human driver must stay alert and ready to take over. Meanwhile, multiple rivals are actively testing Level 4 systems, which are fully autonomous in a geofenced area, such as San Francisco.

Ark also sees Tesla creating an insurance business that will generate revenue of $23 billion to $100 billion by 2025, with industry-shattering margins. So far Tesla has a limited insurance brokerage business, not an actual insurance business. ARK did not appear to take into account operating expenses, capital requirements or many other aspects of an actual insurance business.

Tesla stock, since peaking at 900.40 on Jan. 25, has tumbled along with other highly value growth names. Shares have rebounded from their March 5 low of 539.49, but have hit resistance at their 21-day line, well below its 50-day line. ARK has added to Tesla stock on the way down, along with many other of its big 2020 winners.

VW ID.4 Deliveries In China

Competition is heating up though. The Volkswagen ID.4 crossover began deliveries in China this weekend after deliveries to U.S. dealers started last week. The VW ID.4 is substantially cheaper than the Tesla Model Y. European deliveries of the ID.3 and ID.4 were very low for much of Q1 due to a long-awaited software fix, but VW expects to sell 500,000 EVs worldwide this year.

VW stock has soared in 2021 in EV hopes, though it tumbled late last week after becoming greatly extended.

Dick’s Stock

Dick’s Sporting Goods stock rose 3.8% to 80.58 on Friday, just moving above an 80.42 buy point. It was a short consolidation that was one day from being a cup base. Volume was average on the breakout, and likely only due to Friday’s quadruple witching. The upward trend in prior days came in light volume. But the base wasn’t filled with lots of high volume selling either. The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is at a new high. Earnings are out of the way.

Facebook Stock

FB stock popped 4.1% on Friday to 290.11 in heavy volume as CEO Mark Zuckerberg downplayed the impact of Apple‘s (AAPL) new privacy rules on Facebook’s ad business. Facebook stock cleared a 286.89 early entry in heavy volume and is getting close to a 304.77 official buy point. Investors could start a position here, though after a recent run FB stock could pull back and form a handle.

The RS line for FB stock has been lagging for months, but it’s now at a 2021 high.

Element Solutions Stock

The specialty chemicals maker with some tech exposure fell nearly 5% last week to 19.75, just holding above a 19.50 buy point from a breakout earlier this month. ESI stock did find support Friday near that entry and just above the 21-day line. Investors could buy Element Solutions stock at current levels, or perhaps if it broke a trend line in a short consolidation just above the buy point. Clearing that high handle would offer another buy point at 21.09.

Google Stock

Google stock fell 1.1% last week to 2,2026.96, closing slightly below its 21-day line. The FANG stock now has a flat base with a 2,145.24 buy point, according to MarketSmith analysis. But GOOGL stock could rebound from just above its 10-week line. If it clears last week’s high and gets to 2,114, that could provide an early entry from the 10-week.

U.S. Steel Stock

U.S. Steel tumbled 7.3% to 22.41 last week, but that was still constructive action after running up to near the top of a cup base. On a weekly chart, X stock now has a cup-with-handle buy point with a 24.56 buy point. The daily chart shows a 24.81 cup-without-handle entry, but U.S. Steel is on track to have a handle after Monday.

Wayfair Stock

On Friday, Wayfair stock rose 2.9% to 335.36. Intraday, shares hit 348, briefly clearing a 343.09 handle entry. The RS line for Wayfair stock is right at consolidation highs, though off its August peak.

Wayfair stock was Friday’s IBD Stock Of The Day.

The online furniture retailer is in a hot pocket of market strength.

Upscale furniture retailer RH (RH) jumped 6.1% on Friday and 9.2% for the week to 515.64. RH stock has an official buy point of 524.32 but cleared a downtrend and set a closing high. RH stock would be actionable, but earnings are due Wednesday.

Meanwhile, upscale home furnishings and housewares retailer Williams-Sonoma (WSM) surged 29% last week on strong earnings and guidance. WSM stock gapped out of a base Thursday and kept rising Friday.

Qorvo Stock

Qorvo stock rose 4.2% to 179.85 last week, regaining its 50-day line. During the week, the 5G and iPhone chipmaker got as high as 185.96, clearing a couple of early entries, before pulling back. Now clearing last week’s high would serve as an early entry. One upside from using this entry is that if QRVO stock clears it, the Nasdaq stock will likely be retaking its 21-day line, if not its 50-day.

The official buy point is 191.92.

Qorvo earnings growth has accelerated for three straight quarters while revenue growth has picked up for two quarters in a row.

Several other chip stocks are near buy points, including Applied Materials (AMAT), MKS Instruments (MKSI) and Entegris (ENTG).

As for Apple stock, the Dow Jones tech titan dipped 0.9% to 119.99, falling back below its 21-day line and well below its 50-day. AAPL stock hasn’t bounced back much from its March low.

Market Rally Analysis

In general, you want the major indexes and the leading stocks to be living above their 21-day and 50-day moving averages. On Friday, the S&P 500 index and small-cap Russell 2000 found support around their 21-day lines, slightly above their 50-day lines. The Dow Jones never came close to either line.

But the Nasdaq remains below its 21-day and 50-day lines, with Friday’s bounce recovering only part of Thursday’s 3% tumble. Investors should likely wait until the Nasdaq gets back above those moving averages as well as last week’s highs before stepping up tech exposure.

It’s still unclear if the Dow and S&P 500 will pull the Nasdaq up above key levels or whether the Nasdaq will drag down the broader stock market rally. In a market uptrend, stocks are likely to trend higher. But in a half-rally, half-correction environment, it’s hard to get any sense of the true market direction.

As for the leading stocks, real economy and reopening plays made solid gains over the past several weeks. Tech stocks have struggled, with a recent rebound faltering. Many, like Tesla stock, are stuck below their 21-day and 50-day lines.

But in the past week or so, recent breakouts of all stripes have had a bit more trouble, either sluggishly rising, testing buy points or retreating below buy points.

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What To Do Now

An investor needn’t make money on half her trades if her winners are big and her losses small. In the current market climate it’s hard to make progress with a low win percentage and those winners achieving slim-to-modest gains.

Investors may want modest exposure, a couple of long-term winners and a couple pilot positions in different sectors, to stay in tune with the market.

But you likely don’t want to be heavily invested, even outside of tech. A choppy market is very difficult. It’s just strong enough to tempt investors to buy — usually at short-term peaks — but weak enough to force stop losses.

In addition to preserving your capital, you want to preserve your psyche. Taking a series of losses in a bad market can make you gun shy when the market shows a clear uptrend and you want to be aggressive.

If you’ve held onto stocks that are living below their 21-day and 50-day lines, you may want to exit, especially if they’ve wedged higher in light volume. If you’re sitting on a stock or two like that with huge gains, you can try to weather the storm, but don’t do that with the bulk of your portfolio.

All that being said, a lot of stocks aren’t far from buy points, such as Wayfair, Qorvo or Google stock. A few good days for the market rally and those stocks may be actionable. So work on your watchlists. Find quality stocks above their key moving averages. Make sure to include stocks in a variety of sectors to be sure you’re staying on top of this shifting market.

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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