Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The House gave final approval Friday night to a budget resolution that paves the way for President Joe Biden’s $1.9 trillion stimulus plan.
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Apple stock, Walt Disney (DIS), JPMorgan Chase (JPM), Nike (NKE) and Caterpillar (CAT) are five Dow Jones giants in or near buy points.
The stock market rally is looking strong, buoyed by generally strong earnings and Biden stimulus progress. The indexes are at record highs with several new breakouts. Growth stocks overall had powerful week, with software, IPOs, cyclicals, China names and more big winners. Several chip stocks ran into trouble, but the sector did rise.
But the market is getting increasingly extended, among other warning signs.
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Disney earnings are on tap Thursday night, but Apple, JPMorgan and Caterpillar stock have already reported while Nike isn’t due for more than a month.
Apple stock is on IBD Leaderboard. CAT stock is on SwingTrader.
Congress Fast Tracks Biden Stimulus
The House voted Friday night to provide formal, final approval to a budget resolution fast tracks the $1.9 trillion Biden stimulus proposal. The House voted 219-209 on party lines after the Senate approved the resolution early Friday, with Vice President Kamala Harris casting the tiebreaker vote. The House had already approved the budget resolution on Wednesday, but had to OK the Senate’s largely symbolic changes.
The budget resolution means a Biden stimulus plan can pass with a bare majority, instead of needing 60 Senate votes to avoid a filibuster. Democratic lawmakers will start crafting the actual stimulus legislation soon, with final passage possible by late February.
Because of Democrats’ narrow majorities, the Biden stimulus plan could be slimmed down even without any Republican votes. Negotiating with moderate Democrats could also win over some centrist GOP senators.
President Biden cited Friday’s weak jobs report as a reason to swiftly pass his stimulus plan. That thinking is one reason why the stock market rally had a solid session. He’s already signaled he’s willing to lower the income limits on new direct stimulus check, but he’s insisting that each check be $1,400.
Dow Jones Futures Today
Dow Jones futures will open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
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 105.91 million. Covid-19 deaths topped 2.30 million.
Coronavirus cases in the U.S. have hit 27.40 million, with deaths above 470,000.
Stock Market Rally
The stock market rally raced back from the prior week’s sell-off back to all-time highs for the S&P 500, Nasdaq and small-cap Russell 2000. The Dow Jones came within a whisker of record levels. Biden stimulus progress and generally positive earnings reports fueled the market rally rebound.
The Dow Jones Industrial Average rallied 3.9% in last week’s stock market trading. The S&P 500 index rose 4.65%, the Nasdaq composite 6% and the Russell 2000 7.8%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) jumped 8.1% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) leapt 9%. The iShares Expanded Tech-Software Sector ETF (IGV) rallied 8.1%. The VanEck Vectors Semiconductor ETF (SMH) climbed 3.8%, but stalled after Monday.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Breakout Watch: Stock With 539% Gain Enters New Buy Zone
Dow Jones Stocks Near Buy Points
While growth investors tend to focus on tech and other traditional growth areas, why look at five Dow Jones stocks? Apple is still a growth name, if mature. Disney stock has been rallying on Disney+ and other streaming hopes. Caterpillar and JPMorgan are economic cyclical plays, along with Disney and Nike, that are rallying with hopes for a post-pandemic economic recovery.
More broadly, these stocks, with their heft and different sectors, can offer diversity to a portfolio of highflying IPOs and other volatile growth names.
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Apple Stock
Apple stock rebounded 3.6% last week to 136.76, rebounding from its 10-week line and finding support at its 21-day exponential moving average. Investors could buy AAPL stock now, but it’s close to reclaiming the official 138.89 buy point from a cup-with-handle base. Also, 145.19 could be an alternate entry from a short consolidation above and below the buy point. Finally, investors could use a short trend line from that mini-consolidation, though that Apple stock entry would likely be close to 138.89.
Apple Car buzz heated up last night, with reports that the tech giant is close to a manufacturing deal with Hyundai-Kia on an Apple-branded electric car. But a late Friday report said those talks had stalled, with Apple still considering other automakers.
Nike Stock
Nike stock jumped 8.6% to 145.11, rebounding above the 50-day and 10-week line. Actionable right now, shares of the athletic apparel and shoe giant are close to a 148.05 flat-base buy point.
Caterpillar Stock
CAT stock jumped 5.6% to 193, rebounding from its 50-day line and a prior short consolidation. On Tuesday, Caterpillar stock cleared its 21-day line and a short trend line, offering a buying opportunity that’s still viable. The construction and mining equipment giant has been consolidating for a few weeks that could eventually be a flat base. There is an existing 200.27 three-weeks-tight entry.
JPMorgan Stock
JPMorgan stock leapt 7.2% to 137.98 last week, still within reach of its 10-week line. JPM stock is nearing 142.85 buy point from a cup-with-handle base going back to January 2020.
The 10-year Treasury yield is at 2020 highs, while short-term rates are still rock bottom. That widening yield spread is good news for banks’ core business of borrowing short and lending long.
Disney Stock
Disney stock rallied 7.7% last week to 181.15, rebounding from its 10-week line. DIS stock is still buyable from the 10-week line, but is close to a 183.50 flat-base buy point, according to MarketSmith analysis.
Also, buying ahead of Disney earnings on Thursday is risky.
In Disney earnings, Disney+ subscription growth and other streaming news may continue to be the catalyst for DIS stock. On other fronts, such as theme parks and movie studios, that will require the economy to open up as coronavirus vaccinations hit a critical mass.
Stock Market Rally Analysis
Last week’s rebound was surprising. After the prior week’s sharp losses, more selling, sideways action or a modest bounce seemed more likely. But the stock market rally had other ideas.
Unfortunately, by running back go and beyond the old highs, the Nasdaq is once again looking extended. It’s 7.4% above its 50-day moving average. When that’s 6% or higher, the odds of a pullback are relatively high. Now, the Nasdaq certainly can become more extended. It closed 8.2% above its 50-day line on Jan. 25, just before that week’s losses. In late August, the Nasdaq became increasingly extended, finally closing 11.6% over the 50-day on Sept. 2.
But the more extended the Nasdaq gets above its 50-day line, the greater the risk that the ultimate pullback will be substantial. After Sept. 2, the Nasdaq tumbled in the next three sessions closing below its 50-day line. The composite continued to slide in the September correction.
Other warning signs are out there.
While the stock market rally’s broad-based gains are a positive, there can be too much of a good thing. On Friday, 70% of all stocks are above their 50-day and 200-day lines. That’s unusually high.
Meanwhile, investor leverage is high, with fast-rising margin debt turbocharged by skyrocketing call options.
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What Investors Should Do
Despite those warning signals, the bottom line is that the stock market rally is still healthy, with the major indexes and leading stocks in great shape.
So you don’t need to be defensive, but be cautious about new purchases.
New buys just before a pullback often will run into trouble, forcing investors to quickly cut losses.
At the beginning of a stock market rally, investors might rush to build exposure, much like an old-style Black Friday, with a well-researched shopping list in hand. In the current environment, you need to be more selective, going through the aisles for some limited buys, if any. In fact, you might want to “return” some of your stocks to the market, taking partial profits or cutting laggards or losers.
Are you comfortable with your current level of exposure, and which stocks you’re holding?
Have a game plan for your stocks, so you’ll know what to do in various circumstances. Continue to go through screens, building your watch lists. Investors should always be preparing for new buys, and the process also helps you see which market groups and segments are leading.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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