Dow Jones futures fell sharply Monday morning, along with S&P 500 futures and Nasdaq futures, as new coronavirus cases trend higher in the U.S. and flare up in Beijing and Tokyo. It’s a critical time for the coronavirus stock market rally after the major indexes suffered their worst day (Thursday) and week since market crash in March.
Meanwhile, we’ll review Tesla (TSLA), from the TSLA stock action to headlines such as Elon Musk’s latest comments about the Tesla Semi.
Thursday’s stunning stock market sell-off reflected concerns about rising Covid-19 cases and the economic recovery. On Friday, the major indexes bounced back modestly, trading up and down with some decent action into the close.
Investors need to pay close attention with the coronavirus stock market rally testing key levels in whipsaw fashion. Keep a cool head, an open mind, be decisive and remain flexible.
Nvidia, ServiceNow Offer Tight Entries
But there are a number of leading stocks that have held up relatively well. Nvidia stock, PayPal stock, Cloudflare stock and BioMarin stock all have formed three-weeks-tight patterns, while ServiceNow stock now has a four-weeks-tight.
In a three-weeks-tight, a stock after breaking out will consolidate with tight weekly action. While it may have big daily swings, in a three-weeks-tight the stock will close within 1%-1.5% of the prior week’s close for two weeks. The buy point is 10 cents above the high of the three-weeks tight.
Typically, tight entries are an opportunity for existing holders to buy a few more shares. But in several of these cases, investors could start new positions, especially with stocks consolidating just above prior bases.
Use weekly charts to spot tight patterns. MarketSmith identifies tight patterns on a weekly chart with blue shading. MarketSmith also has a Tight Areas list of Growth 250 Stocks.
Stock futures suggest there will be few, if any, breakouts, Monday.
Meanwhile Tesla stock is on Leaderboard as well.
Dow Jones Futures Today
Dow Jones futures fell 2.6% vs. fair value in volatile trade. S&P 500 futures sank 2.2%. Nasdaq 100 futures retreated 1.5%. In recent days, Dow Jones futures have shown bigger swings and moves, much like regular sessions. Still Dow futures are nowhere near as volatile as during the market crash.
China retail sales for May fell -2.8% vs. a year earlier. That was up from -7.5% in April but slightly worse than views for -2.3%. Industrial production climbed 4.4% vs. May 2019, below estimates for 5% but better than April’s 3.9%. Fixed asset investment sank 6.3% in Jan.-May vs. a year earlier. Analysts expected a 6% drop.
Airlines, cruise lines, casinos were among the hardest hit in premarket trading, but losses were broad-based.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session. On Friday, Dow Jones futures pointed to strong gains, failing to predict the day’s big up and down moves.
Coronavirus cases worldwide have now topped eight million, with infections at 8.01 million. Covid-19 deaths have cleared 436,000.
Coronavirus cases in the U.S. have reached 2.16 million, with deaths above 117,000.
Friday was the heaviest day for new U.S. coronavirus cases since May 21. June 13 was the highest Saturday since May 15. California, Texas, Florida and several other states are at or near record highs for new coronavirus cases.
States have been easing restrictions while weeks of protests in major cities have likely increased infections. If nothing else, higher coronavirus case levels may spur states to slow or halt easing restrictions further. New York Gov. Andrew Cuomo warned he might have to reimpose restrictions, though the state hasn’t seen a bi revival yet.
Coronavirus deaths in the U.S. are still trending lower. That might lag the recent increase in coronavirus cases, but also may reflect better treatments as hospitals learn more about dealing with the disease.
Parts of Beijing are shut down after 45 people tested positive for the coronavirus. They were linked to the city’s largest wholesale food market. Overall, China confirmed 57 coronavirus cases on Saturday, the most since April 13. On Sunday, China reported 49 Covid-19 cases, 36 in Beijing.
Tokyo reported 47 new coronavirus cases, the most since May 5.
Meanwhile, coronavirus cases in Brazil continue to rise sharply, while testing remains relatively low. Chile and Peru have among the highest per-capita Covid-19 infection rates in the world. India and much of the Middle East are hot spots.
Coronavirus Stock Market Rally
The coronavirus stock market rally had its worst week yet, with most of the damage on Thursday.
The Dow Jones Industrial Average tumbled 5.55% in last week’s stock market trading. The S&P 500 index skidded 4.8%. The Nasdaq composite, which hit a record high above 10,000 last week, lost just 2.3%. The big-cap Nasdaq 100 was off only 1.6%. The small-cap Russell 2000 plunged 7.9%.
The Dow Jones and Russell 2000 knifed below their 200-day moving averages. The S&P 500 index dipped below that key level on Thursday, but closed above it on Friday. The Nasdaq tested its 21-day moving average, but never settled below it.
However, stock futures suggest the S&P 500 and the Nasdaq could test those key levels again on Monday.
Why did the stock market sell-off? Fears of a new coronavirus wave are one factor. Meanwhile Federal Reserve projections and Fed chief Jerome Powell’s comments pointed to a long road to a full recovery. The new coronavirus cases in Beijing and the somewhat disappointing Chinese economic data add to concerns about a slower recovery worldwide.
The coronavirus stock market rally may simply be due for a pullback. Since the S&P 500 and Nasdaq follow-through days in early April, the coronavirus stock market rally has run up very fast, with only brief setbacks.
A market pause for a few weeks would be normal. It would let stocks form proper bases and the 10-week line catch up to leading stocks. But the coronavirus stock market rally could quickly rev higher, or take a sudden dive.
Growth stocks held up well last week. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slid 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.3%. ServiceNow stock is notable IGV component. The VanEck Vectors Semiconductor ETF (SMH) actually edged up 0.1%, along with NVDA stock.
Nvidia stock rose 0.1% last week to 357.30 after rising 0.5% in the prior week. Last week Nvidia stock cleared its short consolidation, rising to 380 on Wednesday before pulling back. The three-weeks-tight buy point for Nvidia stock is 380.10.
PayPal stock last week hit a record 160.89, but ended down 0.5% at 155.26, snapping a nine-week winning streak. In the prior week, PYPL stock rose 0.6%. The buy point is 160.99. It’s a valid three-weeks-tight, but PYPL stock doesn’t really have the feel of a consolidation.
ServiceNow stock fell 1.4% to 385.13 last week after rising 0.65% and dipping 0.01% in the prior two weeks. Last week, NOW stock hit a record 405.53, briefly clearing what was then a three-weeks-tight. Now the four-weeks-tight buy point is 405.63. It’s just above a cup base, so investors could start a new position in ServiceNow stock out of this tight pattern.
Cloudflare stock fell 1.1% last week to 28.82 after edging up 0.2% in the prior week. The three-weeks-tight buy point is 30.69. Investors might want to wait for NET stock to get to 30.88, just above the mid-May record high. The cybersecurity stock has been consolidating for four weeks. Cloudflare stock could soon have a proper base with a 30.88 entry.
The Cloudflare IPO, which priced at 18 a share last September, broke out in late February, in the midst of the coronavirus market crash. NET stock soon reversed sharply lower before rebounding again in whipsaw fashion over the next several weeks. That makes the tight action over the last few weeks and especially the past several days especially striking for NET stock.
BMRN stock dipped 0.1% last week to 105.72 after edging down 0.7% in the prior week. That followed a 9.3% weekly surge, decisively clearing a base. BioMarin stock has a 112.67 tight entry.
Tesla surged to a record 1,027.48 on Wednesday. TSLA stock retreated Thursday and Friday, but still closed with a strong 5.6% gain to 935.28.
Tesla stock is still extended from an 869.92 handle buy point, as well as earlier entries. Anyone who bought at a legitimate buy point still has sizable gains in Tesla stock. But those who bought close to the top are off 9%.
Tesla stock fell 3% in the premarket, technically back in buy range.
Growth stocks offer the potential for huge gains, but it’s crucial to buy them correctly, especially with volatile names like Tesla.
Tesla Semi: No News Is Good News For Tesla Stock
Tesla stock surged above 1,000 last week on a “leaked” email, later confirmed by CEO Elon Musk, that it’s “time” to bring the Tesla Semi to “volume production.” But he didn’t set a time or location. Musk first unveiled the Tesla Semi in November 2017. He periodically brings up the big rig, but usually with few details.
So, the Tesla Semi news didn’t have a lot of hard news. But when Elon Musk says it, no news is good news for Tesla stock.
Musk’s Tesla Semi comments came after Nikola (NKLA) opened orders for its electric Badger pickup, with plans to make an electric/fuel-cell big rig as well. Nikola CEO Trevor Milton, like Musk, is a dynamic personality, active on Twitter. Nikola stock, which came public recently via a reverse merger, has skyrocketed.
Tesla Model Y Demand Sluggish
The Tesla Semi buzz also crowded out stories on mini-outbreaks of coronavirus cases among workers at the Tesla Fremont plant. Tesla canceled solar roof orders for many customers, years after taking deposits.
Tesla provided new Model Y incentives, the latest sign of sluggish demand for the new electric vehicle. Meanwhile, Model 3, S and X delivery times in the U.S. have fallen to just 1-3 weeks. There’s speculation that Tesla will start sending the Model Y to Europe in the third quarter.
The Tesla Semi buzz overshadowed some positive news for Tesla and TSLA stock. Volkswagen (VWAGY) won’t release its ID.3, the first in a wave of VW EVs, until September. Some key software features won’t be ready until early 2021.
What To Do Now
During stock market volatility and sell-offs, emotions can take over. That can spur some to trade impulsively and others to freeze. You want to be decisive but cool-headed. A good way to do is that is to review your stocks and portfolio after every trading day. Setting up a game plan can make it easier to execute when markets are trading.
When the market is in flux, investors need to be flexible. Follow the stock market trend.
While this is still confirmed stock market rally, it isn’t a great time to be buying. Wait for more market strength, such as the Nasdaq taking out Friday’s high or even Thursday’s high. As a practical matter, that’s probably necessarily to see many stocks such as Cloudflare or ServiceNow clearing buy points.
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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