Dow Jones futures are not yet trading Sunday, along with S&P 500 futures and Nasdaq futures. The coronavirus stock market rally had another strong week, with breakouts rapidly expanding, including Amazon.com (AMZN), Netflix (NFLX) and Microsoft (MSFT). Apple (AAPL), Alibaba (BABA), Advanced Micro Devices (AMD), Shopify (SHOP) and Cadence Design Systems (CDNS) are notable names near buy points.
This is a time to take positions in leading stocks in the coronavirus market rally. While the coronavirus crisis and an uncertain recovery are major concerns, being overly cautious amid this positive stock market trend carries serious risks as well.
Amazon stock and Netflix stock are extended from buy zones, with Netflix earnings late Tuesday. But Microsoft stock is still in range. Shopify stock and AMD stock are near buy points after clearing aggressive entries. Alibaba stock is eyeing its own early buy point. Cadence Design stock almost hit a buy point Friday, with earnings due Monday. Apple stock could be forming a handle after retaking a key support level.
AMZN stock, NFLX stock, MSFT stock and AMD stock are all part of IBD Leaderboard. Microsoft stock and BABA stock are on SwingTrader. Netflix stock, Microsoft stock, AMD stock are all on the IBD 50 list.
Microsoft, Alibaba and Cadence Design stock are all IBD Long-Term Leaders.
All of these names, including Apple stock, all boast strong relative strength lines at or near highs. That reflects their outperformance vs. the S&P 500 index.
Dow Jones Futures Today
Dow Jones futures won’t begin trading until 6 p.m. ET. As the coronavirus stock market rally has strengthened, the extreme volatility in Dow Jones futures has faded. Some big overnight gains or losses in Dow futures still occur. Volatility could easily return in the current market environment, with earnings season likely to swing Dow Jones futures and especially individual stocks.
Coronavirus cases worldwide are above 2.38 million. Covid-19 deaths have cleared 164,000.
Coronavirus cases in the U.S. are at least 756,000, with deaths above 40,000. After declining for three straight days about a week ago, new coronavirus cases in the U.S. appear to have resumed a plateau going back two weeks. That raises doubts about whether states can substantially ease coronavirus shutdowns and restrictions soon, even as protests against business closures begin.
Florida has reopened some beaches, while New York, New Jersey and Connecticut have reopened marinas and boatyards, all with social distancing rules.
Germany is opening up its economy in stages starting Monday, with other European countries also taking early steps.
But it’s still not clear if any country can successfully ease up. Singapore coronavirus cases have surged over the past few weeks despite what appeared to be an initial success with an extensive test, track and trace program. The U.S. needs more testing and to get track-and-trace programs in place to identify emerging clusters to have a decent chance of reopening the economy successfully.
In the meantime, Congress appears to be getting closer to a deal on additional coronavirus emergency aid. Republicans have agreed to add aid to hospitals as part of legislation to replenish funds for small business loans, but Democrats also want aid to states.
Coronavirus Stock Market Rally
The coronavirus stock market rally had a strong week. The Dow Jones Industrial Average climbed 2.2%, the S&P 500 index advanced 3% and the Nasdaq composite surged 6.1%. The Nasdaq composite surged above its 50- and 200-day moving averages as growth stocks take control of the coronavirus market rally. The S&P 500 index moved back above its 50-day line, while the Dow Jones is lagging.
Microsoft stock jumped 8.15%, Apple stock 5.5%. Both are Dow Jones, S&P 500 and Nasdaq components. Amazon stock, the third trillion-dollar U.S. company, skyrocketed 16%.
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Avoid Coronavirus Stock Market Rally Inaction
Caution was essential during the coronavirus market crash. And while the bear market bottomed on March 20, there was no reason to be confident in the new coronavirus stock market rally
Investors should wait until a follow-through day confirms a new uptrend. On April 2, the S&P 500 had a follow-through day, but it wasn’t especially impressive. On April 6, the Nasdaq staged a much-more powerful FTD, though there weren’t a lot of stocks in position. But this past week, there were a lot of growth stocks breaking out, including Dow Jones giant Microsoft and FANG stocks Amazon and Netflix.
There are reasons to be cautious. After a bear market, the initial confirmed uptrend or two often fail. Coronavirus news remains uneven. The coronavirus stock market rally seems to be betting on the U.S. and Europe reopening their economies. But that could take a long time, and may not be successful. Plus, earnings season is coming, with most companies like to report dismal results and little guidance.
Of, stock markets rise on a wall of worry. If everyone was bullish, who would be left to buy?
Excessive caution can be risky. The first weeks of a stock market uptrend from a bear market are where the big gains are. The earlier breakouts are often the big winners of the stock market rally. Investors might be able to build a cushion in some quality names. When the coronavirus stock market rally has a pullback, you could withstand that and hold for bigger gains. Or in some cases, take partial profits or cash in.
If you wait until the stock market rally hits all-time highs, that’s priced in a lot. After the initial burst, the market rally could have a slower advance with more choppy action.
The 2019 Stock Market Rally
Why not wait until stocks hit all-time highs? Consider the 2019 stock market rally. After the 2018 bear market, the Nasdaq surged in early 2019. But it didn’t retake its old high until April 23, 2019. On April 29, the Nasdaq hit a fresh peak and reversed lower. The S&P 500 index finally set an all-time best on April 29, then began retreating after May 1.
Stocks headed lower until early June. A new uptrend took hold until late July, but then the market was in a choppy range until mid-to-late October.
During this May-October span, there were opportunities for investors. But the gains were smaller and failures more likely.
Investors missing out on early 2019 gains also may have felt an urge to press harder and hold on longer to catch up with the market.
Invest Prudently In Market Rally
Of course, investors shouldn’t be buying just anything. Stocks in many beaten-down sectors remain far from any buy points. Others, such as Amazon stock and Netflix stock — which leapt 14% last week — are now extended from buy zones. But others like Nvidia (NVDA) and Microsoft stock are actionable now.
Meanwhile, several other top stocks are approaching buy points.
Alibaba stock has a 231.24 consolidation buy point. But investors could buy BABA stock as it crosses a downward-sloping trend line. Alibaba stock hit that trend line on Friday, but reversed lower. Even so, Alibaba stock rose 6.7% last week.
AMD stock has a 59.37 cup-base buy point, according to MarketSmith analysis. Shares of the chipmaker already cleared an early resistance area just above 50 last week. AMD stock soared 17% to 56.60. A handle would give AMD stock a chance to rest before a breakout. But they may not happen.
Shopify stock exploded 41% last week to 590.39. Technically, SHOP stock has a 593.99 buy point, but arguably it looks greatly extended from resistance at 470.67. After such a huge move, the risk of a Shopify stock pullback are very high. Even more than AMD stock, ideally Shopify stock would form a handle before breaking out to new highs. If it doesn’t pause, investors may want to wait for SHOP stock to set up again.
Cadence Design Stock
Cadence Design stock rose 9.8% last week to 78.65. On Friday, CDNS stock rose to a record 80.46, but never hit the 80.50 cup-base entry before pulling back.
Cadence Design earnings are due late Monday. Analysts expect flat Cadence Design earnings of 54 cents a share, with sales up 7% to $614.5 million. But the design software maker’s EPS growth is expected to accelerate over the next three quarters.
Apple stock is building the right side of a cup base, with a 327.95 buy point. AAPL stock reclaimed and then held support at its 50-day line. The iPhone maker could be forming a handle, though it needs a little more time.
Apple earnings for fiscal Q2 are due on April 30. Analysts see a return to slim Apple earnings and sales declines for the next few quarters, as the coronavirus crisis takes its toll on nonessential consumer spending.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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